Sunday, 28 October 2018

The 11 takeaways for investors from Max Gunther’s How to Get Lucky:

1. Distinguish between luck and planning
Your investment results have a healthy dose of luck in them. Internalise this so you don’t feel invincible after a good year or question your intelligence after a bad year.

2. Find the fast flowInstead of taking this to mean show up at every investor conference, find meaningful ways to engage with people who apply different investment philosophies.

3. Take risk in measured spoonfulsLearning to invest is like learning to ride a bike or swim. You have to get in there and put small amounts at risk to understand what works for you. At the same time, never with amounts, you can’t afford to lose.

4. Cut runsWhen a stock you own starts rising rapidly because a bunch of favourable factors aligned, don’t target riding it all the way. Be ok with exiting sometime before the peak.

5. Select your luckDon’t let your ego or loss aversion get in the way of sticking with a poor stock even as it declines gradually. Cut your losses.

6. Take the zigzag pathMaybe you have the instincts of a trader. Maybe your skill is in finding obscure micro-caps. Or cyclicals. Or contrarian large caps. Every successful investor is successful in her own way. Explore a little to find your way.

7. Be a pragmatic supernaturalist
Corollary to point 1, sometimes luck overshadows supreme skill. Sometimes you get good results without a good process. Stay humble.
8. Visualise the worst caseAvoid leverage. Size your positions.

9. Stay silent
That urge to tweet about a pick that’s gone up 25% in the last week. Resist it so you can exit the position without feeling like you will lose face.

10. Recognize non-lessons“Stocks fall in election years” / “Stocks rise in election years”. Wrong. “It’s an election year, stocks will be more volatile than usual”

11. Accept an unfair universeThe stock market does not owe you returns. Not even if you first lost money in Satyam and then again in Educomp.

Quote for the day

"When money realizes that it is in good hands, it wants to stay and multiply in those hands." – Idowu Koyenikan