The more I think about it, the more it’s obvious that investing is like a skill-based game!
Like any skill-based game, the more you think about and practice with it, the better you become (hopefully).
I’m finding that in many ways investing is very similar to a game such as Risk, or even Chess. Investing involves losing money as much as winning money. Much like skill-based games like Chess, you lose pieces, but sometimes you have great gains with one piece, and sometimes you hold onto that piece until the end of the game ends or at least for a long time.
A lot of people lose some money with stocks and get disillusioned with the entire process and quit. But hardly anybody wins all the time with the stocks that they purchase. It’s a matter of experimentation and experience. I’ve had 6 bagger (stocks that increase their value 6 fold more than the purchase price), and I’ve had stocks that went to 0 (painful, but luckily it’s been just a few).
I’ve learned to look at more than just the financial statements, and I’ve learned to look at more than just the stock story. I’ve seen some companies with incredible products that were brilliant go broke because the product was too expensive compared to competing products. I’ve also seen a few stocks with rock solid financials but later it was revealed that the books were cooked, or at least questionable. I’ve also seen a few stocks that were solid financially for many years, and that are now on the decline because of a changing business environment (think Pitney Bowes).
I’ve also learned that the management team (and especially the CEO), matters! Look at Apple after Steve Jobs passed away for confirmation of a stock that looked like it would continually go up, and now has fallen quickly and some even believe has a questionable future.
I’ve also learned that I can’t do it like Warren Buffett. His system is best done by him alone. Considering he doesn’t even have a computer in is office at work really demonstrates that I won’t even invest like him. That said, there are definitely techniques that I can learn from Warren, but in the end I would have to come up with my own system.
I have learned to diversify my stocks, and only put so much into each stock investment. If I think I’m pretty sure a stock is a winner (much like Baidu was), then I invest more in such a stock, but those opportunities are rare for me.
I’ve just scratched the surface, there are many other facets to consider, such stock rotation during the year and other ever-changing strategies…