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Do you think investing is more skill-based or experience-based? Both?

posted 5 years ago by SolemnMime (174)
4 replies | jump to latest

I've been in to investing for a few years so I'm still new. I don't consider myself particularly "good" at it (nor bad either), however you measure that other than maybe a hot streak/way more profit than loss.

My portfolio now is dropping hard, but was going up pretty well not too long ago. I could show graphs of my portfolio's movement but figure that wouldn't be relevant here.

Anyways, the real thing I'm asking here is to see what people think about investing overall. Do you think it's more of an independent, self-directed or hunch-driven assessment of one's personal experiences in investment overall? Or do you think it's more skill-based, like learning in-depth information to help make more profitable guesses than just diving in and figuring out your "mojo?"

Because other than most publicly available info and one's own prediction of a potential future growth, I don't see much other room for skill in determining where a stock will go and why in the future. But I am nowhere near an expert despite having experience so this is only my interpretation of this and I can very well be wrong.

Lots of investors also developed their own "thing" and never had any specific or long-term investment education or such and follow suit with it however long they wish, i.e., they never studied by the book or took courses/schooling/etc. before jumping in and getting their feet wet.

So do you think investing is the kind of thing where lots of education on the theories/subjects/financial info/etc. matters a big deal? Or do you think it's more about playing your luck right and having enough experience in various investment manners directly?

Because I could educate myself more than just on "surface topics" of investing simplicities/basics, but not sure if it's worth it since investing can be really hit or miss for many people with the markets sometimes, even despite having adequate knowledge.

[–] nyctc7 (41896) 5 years ago

First, let's dispose of investing vs. trading. Trading is for the pros. By trading I mostly mean day-trading and options trading. There are always infomercials promising all you have to do is buy a program or get "coaching" and you are on your way to wealth. Poppycock!

The easiest way to invest is to take Warren Buffett's advice and simply purchase low-cost index funds. Or maybe purchasing so-called "blue chip" stocks and reinvesting the dividends. In the long term you will do just fine and this takes no skill.

Picking specific stocks is a skill. Yes, you can get lucky, but overall it is a skill. Taking a look at a company, you need to analyze its fundamentals, such as its balance sheet, its management, its competition. Those are 'fundamentals" as opposed to the "technicals". A technical analyst doesn't care about fundamentals--just what the stock is doing. I would say that the average Joe investor looks at fundamentals, while traders are technical anaylists.

In short, the average amateur investor is probably better off not trying to pick individual stocks unless they are "blue chip" or he/she wants to do the work of research and analysis to pick an up-and-coming stock with the potential of making more money than investing in established companies. Yes, you can get lucky with a gut instinct--let's say you were a customer at McDonald's in the 1960s and you just liked it a lot and bought some stock. But if you felt the same way about Twitter you would not have done particularly well (so far, at least).

Edited to add: One of the hardest things to do with investing is being patient. 15 years ago I bought a few shares of Google, held it for a year or so and made a modest profit. If I still had then today, I wouldn't be rich but they would be worth so much more.

[–] SolemnMime (174) 5 years ago

Good point/breakdown on the two differences there. I liked the idea of day trading, but that's nothing to jump in to without really high risks and preparation. So I've stuck with just "investing" more so, but still prefer higher risk which is why I go with stocks (REITs included) only now. I don't quite get is what makes one "qualified" to know where a stock will go. I can know everything about a stock (price, sector, all little earnings tidbits, popularity, past and present values, etc.), but predicting where a company will be in 5 years or even 50 years sounds to me like it's nothing much different than gambling/wild guessing in a sense.

I've never tried investing straight in to index funds, but it sounds like something good.

I know analyzing companies can give you lots of info, but even doing so thoroughly I don't believe you can 100% predict the future of a company (or even in good faith make an educated guess much either) even with everything because even the company itself strives on and can't make guarantees to anyone, including to itself. So that's really more so on my point that you can learn, learn, learn, but it's still very much hit or miss in my view regardless. I don't read all info about companies, but that's because I don't really get the sense that some info really makes me more preferable to one company vs. another or helps me "know" which one is supposedly better. I am holding on to stocks now that have gone up well and fallen back down, and couldn't say even with my time and knowledge if it's a "good investment" or not as that comes down to subjectivity when you factor in the guesswork and future predictions.

But then again there's "insider trading" and other stuff, but even predicting the weather seems more reliable or viable than predicting whether a penny stock you invested in to would be net you, say, millions in the next 10 years or so.

But I admit this could be my negativity/skepticism talking on this subject specifically as there are a lot of so called "gurus" that make me question the legitimacy of investment tactics/profitability/methods and where you can go with investing financially.

[–] nyctc7 (41896) 5 years ago

“It's tough to make predictions, especially about the future.” ― Yogi Berra

I would never touch penny stocks. There's a reason they are called that. Most people get hung up on one because they have a "hot tip." Beware hot tips. I have a friend whose step-mother is a scientist in the biology field. She had a hot tip about a company with a new kind of disinfectant. It was going to be the latest thing. I bought the stock around $5 and now, seven years later, it is 36¢ (I sold at a lesser loss some time ago). I suppose I thought I had some kind of special knowledge because of his mother, but it turned out that while she may be an expert in her field, she knew nothing about the overall fundamentals of the company (including a CEO who paid himself way too much).

Yes, General Motors went bankrupt. Lehman Brothers went bankrupt. Who would have ever thought? That's one appeal of index funds, they are so diversified that one can feel safe, at least in the long run.

I believe that the younger you invest, the better. Wish I had. Around 40 years ago I bought two shares of IBM for $30 ($15/share). Today they would be 8 shares (due to splits) worth $1,115.84‬ plus reinvested dividends. (I sold many years ago, like I said it's hard to be patient)

[–] SolemnMime (174) 5 years ago

Yeah, that's true, but I prefer some risk at least, even if it is penny stocks.

I agree with the investing young mentality. Even if you don't profit much or like it, at least you can establish some sort of financial fallback/support -- or maybe even additional/living income overtime (like with dividends).

I tried going in with ACHV (Achieve Life Sciences) since they were going for up to tens of thousands per share. I bought in when at their lowest, but then I think they did a split or something and it seemed not worth it holding them and hoping they would go back up to the hundreds/thousands -- so I sold. Don't know if that was the best, but I still watch it.