Sunday, December 26, 2010

Investing Skills

Most people believe that investing is a skill, with the more skilled investors earning above average returns. How is this skill created?

A post in http://www.investingcaffeine.com/ explains this:

Creating a Skillful Analytical Edge


Unlike the process of mowing lawns, in which more applied work time generally equates to more lawns cut (i.e., more profits), the investment world doesn’t quite work that way. You could work all day, stare at your screen for 23 hours, trade off of useless information, and still earn lousy returns. When it comes to investing, more work does not necessarily produce better results. Mauboussin’s prescription is to create an analytical edge. Here is how he describes it:

“At the core of an analytical edge is an ability to systematically distinguish between fundamentals and expectations.”
Steven Crist sums up this indispensable concept beautifully:

“There are no “good” or “bad” horses, just correctly or incorrectly priced ones.”

A disciplined, systematic approach will incorporate these ideas, however all good investors understand the good processes can lead to bad outcomes in the short-run. By continually learning from mistakes, and refining the process with a constant feedback loop, the investment process can only get better. On the other hand, schizophrenically reacting to an endless flood of ever-changing information, or fearfully chasing the leadership du jour will only lead to pain and sorrow.

7 comments:

jagjit said...

I really appreciate the comments of the experts. Yes, a skillful investment can lead to poor returns but this is learning and it can make us more skillful, the only need is to be skillful to improve your skills; and God willingly luck may support you.

jagjit said...

Sir,
I have a query regarding some patterns and the importance of the time of their occurrence. There was a piercing pattern formation in December on the Sensex chart near the low of November which infused more chances of some kind of rally. And yes, a nice rally followed the pattern. Now there occurs another bullish pattern i.e. a bullish engulfing pattern on 23-24 Dec, with a distinction of being made near the high of early December peak. Plz elaborate the patterns and tell us what clues can be taken from this at this juncture.

rajiv malik said...

dear sukhani ji,

i wish you and all the blogmates a very happy, healthy and prosperous 2011.

rajiv malik said...

missing your updates......regards

rajiv malik said...

dear sukhani ji and blog mates,
my mock trading in option writing is as follows-

today i have done option writing [selling] of the following strikes-

pe 6100 jan @ 70.60
ce 6100 jan @134.95
total premium received is-205.55
option experts may guide if this is a good position to take and would it give me profit by the end of expiry ? what kind of profit can i expect ? what is the risk and what could be my maximum loss if the nifty touches new highs ? how to manage it in the best way so that it is profitable ?

ANAS said...

Respected Sir, its me again.....

just dropped in to wish you a very happy and prosperous year ahead...

HAPPY 2011 SIR!!!

K_Vir said...

My feedback on mock option writing. These levels are too close and can result in big loss if market decides to break out. I suggest examining 3 to 6 months chart and arriving at resistance and support levels. Sell put at support strike price and call at resistance strike price. If some in early data, one can get 30 to 50 points giving. 100 % annual return. For jan series these levels are 6300 and 5700.