Let's try to relate investment with a sports like say Golf. To put some things in comparison, we have
Golf Set = Bloomberg, Excel Spreadsheet, Brokers' charting tools
Golf Swing Techniques = Fundamentals, Valuation, Technical analysis
To win the game of Golf = a lot of hardwork and luck
To beat the Market = a lot of hardwork and luck
When you first start at golf, you will suck big time. You probably bought a golf set that cost S$299 and try out on the driving ranges. In investment, this is like engaging your local broker and their cock-up systems with their technical charts and then dabbling into your first purchase.
Then you realize that you need to put in more time and effort to actually play golf meaningfully and this is when you start to engage instructors to improve your swing, you read up golf books and practice a lot. In investment, this is where you also try to learn from other investors, attend sessions, read books, buy some software and really get your hands dirty with all the financial statements and valuation analysis. Or charts and RSI and MACD for the technicians.
So after a few years of practice, you are ready to compete with other golfers. Say there is a competition for all the world's golfers from beginners like yourself to pros like Tiger, where do you think you will stand? Will you beat say 50% of all the golfers? Or 80%? Or 99%? Similarly in investment, after a few years of doing some real company analysis and trading, can you earn average market return of 8-10%pa? Or the best returns of around 25-40%pa (over the long run ie. 10yrs or more)?
The success rate of being able to beating the average will correlate with the amount of hardwork you put in to either golf or investment.
What determines why Tiger beats the average? Most golfers know the swings and techniques like Tiger does. (Most investors know all about fundamental and technical analysis). Most golfers use the same tools (golf sets) like Callaway/Mizuno/TaylorMade golf sets. (Most investors use the same Excel/Bloomberg/Brokers' charting tools.)
Tiger beats the average golfer through a lot of hardwork and beats the best of the best golfers through luck. Some might argue talent is impt but studies have shown that talent may help but ultimately it's hardwork.
I think a lot of pple know Tiger started golf at the age of 3, and trained hard everyday to win his first championship at 18. That's 15yrs of hardwork btw. But he did not stop there, he continued to work hard to perfect his swing so that he can better himself. So if you are not training that hard, is it a wonder why you cannot beat him?
Don't believe? Read this article.
But at the pros level, Tiger, Vijay, Phil etc, everybody is training as hard as everyone else. So in the end, whoever wins the championship is probably a matter of luck.
So in investment, if you are spending 1-2hrs a day reading some annual reports, doing simple brainstorming about how the world will change tomorrow and how your investment will do, can you beat the market average of 8-10%pa? Of course the market is made up of some aunties and uncles, some novices, some semi-pros, and also pple like Buffett, Lynch, Soros, Jim Rogers, Peter Lim who spent their lives thinking about how the world will change and are very good at it. If you work hard enough, probably there is a chance to beat the average even though you cannot beat the best of the best.
As a side note, passively investing in indices will give you 8-10%pa which is quite good and this is actually one of those rare free lunches in life. Minimal effort for earning an average return!
If you do put in a lot of hardwork, so much so that you think you are in the league of the best investors globally including Buffett, Lynch, Soros, Jim Rogers, Peter Lim etc, then you can only beat these pple if you have luck. Studies have shown that only 10% of all investors can actually beat the average return of 8-10%. So it's a lot of hardwork to be in this top 10%. And to stay there, give a big smile to Lady Luck and hopefully she smiles back!
Golf Set = Bloomberg, Excel Spreadsheet, Brokers' charting tools
Golf Swing Techniques = Fundamentals, Valuation, Technical analysis
To win the game of Golf = a lot of hardwork and luck
To beat the Market = a lot of hardwork and luck
When you first start at golf, you will suck big time. You probably bought a golf set that cost S$299 and try out on the driving ranges. In investment, this is like engaging your local broker and their cock-up systems with their technical charts and then dabbling into your first purchase.
Then you realize that you need to put in more time and effort to actually play golf meaningfully and this is when you start to engage instructors to improve your swing, you read up golf books and practice a lot. In investment, this is where you also try to learn from other investors, attend sessions, read books, buy some software and really get your hands dirty with all the financial statements and valuation analysis. Or charts and RSI and MACD for the technicians.
So after a few years of practice, you are ready to compete with other golfers. Say there is a competition for all the world's golfers from beginners like yourself to pros like Tiger, where do you think you will stand? Will you beat say 50% of all the golfers? Or 80%? Or 99%? Similarly in investment, after a few years of doing some real company analysis and trading, can you earn average market return of 8-10%pa? Or the best returns of around 25-40%pa (over the long run ie. 10yrs or more)?
The success rate of being able to beating the average will correlate with the amount of hardwork you put in to either golf or investment.
What determines why Tiger beats the average? Most golfers know the swings and techniques like Tiger does. (Most investors know all about fundamental and technical analysis). Most golfers use the same tools (golf sets) like Callaway/Mizuno/TaylorMade golf sets. (Most investors use the same Excel/Bloomberg/Brokers' charting tools.)
Tiger beats the average golfer through a lot of hardwork and beats the best of the best golfers through luck. Some might argue talent is impt but studies have shown that talent may help but ultimately it's hardwork.
I think a lot of pple know Tiger started golf at the age of 3, and trained hard everyday to win his first championship at 18. That's 15yrs of hardwork btw. But he did not stop there, he continued to work hard to perfect his swing so that he can better himself. So if you are not training that hard, is it a wonder why you cannot beat him?
Don't believe? Read this article.
But at the pros level, Tiger, Vijay, Phil etc, everybody is training as hard as everyone else. So in the end, whoever wins the championship is probably a matter of luck.
So in investment, if you are spending 1-2hrs a day reading some annual reports, doing simple brainstorming about how the world will change tomorrow and how your investment will do, can you beat the market average of 8-10%pa? Of course the market is made up of some aunties and uncles, some novices, some semi-pros, and also pple like Buffett, Lynch, Soros, Jim Rogers, Peter Lim who spent their lives thinking about how the world will change and are very good at it. If you work hard enough, probably there is a chance to beat the average even though you cannot beat the best of the best.
As a side note, passively investing in indices will give you 8-10%pa which is quite good and this is actually one of those rare free lunches in life. Minimal effort for earning an average return!
If you do put in a lot of hardwork, so much so that you think you are in the league of the best investors globally including Buffett, Lynch, Soros, Jim Rogers, Peter Lim etc, then you can only beat these pple if you have luck. Studies have shown that only 10% of all investors can actually beat the average return of 8-10%. So it's a lot of hardwork to be in this top 10%. And to stay there, give a big smile to Lady Luck and hopefully she smiles back!
I agree that Value Investment requires lot of hardwork. The problem with your investment analogy to Golf is that Tiger is playing in only major events, his presence at time create fear in other players; so much so that some of them could not at their best mentally!
ReplyDeleteWhile Tiger is going for his usual million dollar prices and many more million appearance fees, there are many Professional Golfers don’t mind participating in region event that they get chance to earn few thousand dollars top price.
In summary, there is hope for smaller and less equipped investors. Just avoid all the Tiger’s event!
Hi, thanks for the comment!
ReplyDeleteI guess the objective here is more to win the average guy rather than beating Tiger Woods.
Similarly, in investment the objective here is to beat the average of 8%pa rather than to be the best of the best (25-40%pa for a long period).
Mundane as it may be this meagre return of 8-10%. It is actually very hard to achieve over a long investment horizon (10yrs or more).
This is logical bcos only if you have put in enough effort and hardwork, then will you see the results.
8percentpa