How many of us have gone headlong into a stock on a tip from a trusted friend, only to see the investment abandoned as the stock does the opposite of what you thought it was going to do? How long was it until you repeated that mistake?
Investors have a bad habit of repeating bad habits expecting a different outcome. This is widely recognized as evidence of insanity.
The concept of designing a strategy specific to a range of pre-thought out parameters, and then sticking to that plan regardless of other influences, is the hallmark of professional investing. That wisdom is tempered with an appreciation for recognition of when a strategy is based on faulty rationale, and knowing when to fold your hand.
Investing is really just another word for gambling.
There is certainty that any particular asset class is going to perform in the near term according to what technical or fundamental indicators suggest is most likely. There are only degrees of likelihood. Which are like the odds.
Through regressive statistical analysis, quant analysts know that the characteristics of a stock whose trend is upward in a certain timeframe is more likely to continue along that trend, barring any fundamental factor to come along and upset that direction.
Similarly, a stock in a downward trend is likely to be exhibiting certain characteristics across key metrics that make it likely that a falling stock is more likely to continue falling, barring a fundamental reason for it not to.
The uncertainty in markets is a result of all of its participants having different strategies, different time horizons, different objectives, and different data criteria to inform their opinions and decisions. Then of course, there is the tangential wildcard of short strategies and scalpers to add randomness to what would otherwise be a form of order.
My experience and resulting cynicism has resulted in the conviction that any investment or trade only has a true 50:50 shot of working out. I arrive at this observation based on a lifetime of capital lost that I generated from everything but investing in stocks.
Among the only behaviours I could adopt to to change the consistency of deploying capital based on information believed to reliable at the time, and turning out subsequently to be faulty, or rendered inaccurate by unforeseen developments, was to avoid buying stock out of the market, and to reduce my market participation to purchasing stocks in private placements in startups founders’ rounds – an accessibility not broadly or predictably reliable for most investors, and so not therefore an adoptable strategy.
But in the stock market, I have nonetheless committed to this strategy, and have found my return on capital to be improved by the discipline.
Regulation A+ (or what I like to call the Gray Market) now provides the ability for the average retail investor to participate in founder’s rounds and early seed rounds that could result in an improvement in return on capital, but only if there is a reliable access to Reg A+ offerings that are built on quality management teams capable of executing well-designed business plans.
In 2020, investors will want to be receiving our Gray Market newsletter to get access to these quality offerings.
Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.
Investing in emerging public companies involves a high degree of risk and investors in such companies could lose all their money. Always consult a duly accredited investment professional in your jurisdiction prior to making any investment decision.
Midas Letter occasionally accepts fees for advertising and sponsorship from public companies featured on this site. James West and/or Midas Letter may also receive compensation from companies affiliated with companies featured on this site. James West and/or Midas Letter also invests in companies on this site and so readers should view all information on this site as biased.