No matter how much we might want to believe otherwise, sometimes luck really does have everything to do with investing. Whether we like it or not, people sometimes can make a lot of money investing with little more than luck on their side.
And sometimes, despite our best efforts, Lady Luck is looking in the other direction, and we get burned.
So what’s luck got to do with investing?
Well, when it comes to investing we could all use a little luck. And if you don’t have luck on your side, you might just have to make your own.
Timing. As the saying goes, timing is everything, and so it is with investing. If you enter the market at the bottom of a bear cycle, you can achieve tremendous rewards just by getting into the investment elevator and riding it to the top floor. You can’t time the stock market, but it sure would feel good to get in at exactly the right time. And since no one can actually time the market perfectly, if you do it’s generally because you got lucky.
Being in the right stock(s). Every investor is looking for stocks that will rise in price. Some rise by a little, and others by a lot. And still others just take off! If you get into one or more stocks that are headed for the moon, it’s probably more luck than anything else.
Avoiding disaster. There are times you decide to take profits. You sell a single stock or even your entire stock portfolio. Maybe you needed a lot of money for some unforeseen issue in your life. You’ve made healthy profits, and you sell to collect them. Right after you do, either the stock or the entire market takes a dive and you get to sit out the punishing ride down.
And again, since timing the market with precision is virtually impossible, luck plays a dominant role in your good fortune.
But sometimes your luck just runs out.
What if you don’t have much luck when it comes to investing — or you use up your lifetime allotment? You may have to create your own luck by getting actively involved in the process.
Create Your Own Investment Luck
Much of our success in investing has to do with what’s going on in our lives beyond our investment portfolio. A balanced financial life will not only keep you out of panic situations, but it will also provide you with a calm base from which to make intelligent investment decisions.
By being good at your job, or in your business, you not only afford yourself a source of investment capital, but also produce sufficient income so you don’t need to tap your investment portfolio at inopportune moments.
Luck is often nothing more magical than having the deck of life stacked in your favor.
Sharpen Your Investment Skills
Nearly every investor could benefit from sharpening his or her investment skills. Even if a given strategy has worked in the past, circumstances are always changing, especially when it comes to investments. You need stay on the cutting edge, and to periodically invest some time and effort into new investment strategies.
Plan on reading one good investment book each year, or at least an updated version of one you’ve read in the past. Attend an investment seminar or two sponsored by a successful investment advisor.
Join an investment network so you can bounce ideas back and forth with other investors. No man is an island — especially when it comes to investing.
Luck Requires Patience
Much of the perception of luck –- or the lack of it -– centers around timing. It’s hard to resist the temptation to expect that a stock will reap big rewards in a short span of time. If it does, it’s probably pure luck.
Most of the time, investments get better with age. This means you have to buy stocks planning to hold on to them for years, not months.
If you do buy a stock and the price rises substantially in just a few months, or know of others who have experienced this, you have a strong corrupting influence. Since such an event does happen every now and again, you can lock your expectations into that pattern.
That could lead to one of three outcomes:
- Selling a stock too soon in order to lock in a small gain, while much larger gains occur over the longer time frame (opportunity cost).
- Panic selling the stock because it doesn’t perform within your time expectations.
- Abandoning stocks completely out of frustration when they don’t perform the way you expect.
Any of these three outcomes will cause you to either lose money, or to lose out on the opportunity to make even more money. Patience is a virtue, and it has nothing to do with luck. But if you develop it, you might start seeing more investment returns that make it look like luck is a factor.
Rely on the Professionals
If your investment experience over a period of years gives every indication that the only luck you have is bad luck, you still have one other option. You can turn your investments over to the professionals. And you can do this easily by investing your money in mutual funds or exchange traded funds.
We can think of this as taking advantage of other people’s “luck”, or their superior expertise. Not everyone is meant to be a successful investor, and if you aren’t, the best approach is to let others handle it. By investing in funds, your bad luck will be removed from the investment process.
Even better, is to invest your money in index funds. These are funds which track specific markets. If a specific market sector — or the general stock market — is doing well, you will be able to participate in the momentum. Your bad luck will be powerless to interfere with your success!
In the end, investing has far less to do with luck than it does with your own skills and preparations.
If you think you’re having a run of bad luck, it may just mean you have to brush up on a few things. If you can’t seem to get it right –- that’s what mutual funds are for.
Do you think luck plays a part in your investments?