Crazy Idea No 5 : Investment success = Luck + Hard work + emotional readiness

Oaktree Capital's chairman Howard Marks in his memo , "Getting Lucky." has put across an interesting perspective on the role of luck in investing.

Marks writes, "Investment success isn't just a question of whether the investor put together the 'right' portfolio, but also whether it encountered a beneficial environment.  Thus being successful requires a significant degree of luck.  No one gets it right every time.  (That's why even the best investors diversify, hedge and/or limit their use of leverage.)  But the skillful investor is right more often, over a long period of time, than an assumption of randomness would permit.  We say about such investors, 'it can't be luck.'"

Another interesting take on "Luck" is  "Outliers " a book by Malcom Gladwell . 10000 hours was highlighted as minimum one needs to practice any skill to be more lucky than the rest. That means for 5 years one needs to practice  5 days a week X 8  hours to reach   "GETTING LUCKY" skill level. 

So one can get lucky in investing  by practicing investing for 10000 hours ?? Well my take is MAY BE .

This is because while 10000 hours is necessary condition for being lucky , but its is not the only condition  . The magic of 10000 hours works only if you have 

1) Basic aptitude and interest for the skill you are pursuing 

2) Emotionally you are ready to being lucky 


10000 hours of practice if forced upon by parents / employer or external forces may not ignite " Genie of luck "  as much as if the 10000 hours of hardwork was directed to skill that your heart wants to learn .  Hence LOVE what you do , and do what you love is the first principle for getting Lucky .If investing is not gives you a kick find someone who loves to Invest : check his/ her integrity , see if he has 10000 hours of experience , then bet on him/her 

Emotional Readiness is building emotional strength for play the game . The right mix of courage , caution and speed is necessary for investment success . While 10000 hours of practices helps one to get over 90% of uncertainties related to investing , for that 10% of events ( in cricket lingo  to face googlies ; bouncers ) one need to be emotionally ready and have right temperament  .

Well then who said Investing is easy ??

Idea No 1 : Every Stock has a "Bargain Price" irrespective of quality of business

All stocks that are listed have a price . This price is often market discovered price arrived  on demand and supply  of that stock . This price  may have no relation to dynamics of business or its ability to generate future cash flows for business owners .

The value diversion  depends upon market optimism or pessimism in immediate future Though  none of the participants has ability to predict future, people form a view basis dominant news flow.

This creates a Concept of Bargain price for sales or purchases .

It is interesting to look at  Hindustan Unilever price history  whose business is  least effected by business cycles and regulatory polices .Pl note  how much swing it has within one  year which is as high as 50% even after excluding for years when it had some corporate action to influence the price . This present enormous opportunity for active investors who believe to wait for Right Ball to Strike



Let us look at business that is impacted by Business Cycles & high debts  like Tata Steel . This presents even bigger opportunity for individual who believes that Steel is critical for India to grow and unfortunately India has very few good players who possess group level Moat to last through multiple business cycles and high interest rates . This stocks moves by 10 to 20 times in one business cycle of 5 - 10 year ie virtually doubling every year from its bottom value . So how does one catch bargain price  in both cyclical and non cyclical business ??

Next  9 week articles on Crazy Ideas will reveal some of the strategies to get arrive at  Bargain price range for any business