This morning the Livewire team gave Forager a gong for one of 2016’s top performing stock ideas (Whitehaven Coal). While the sentiment is much appreciated, it is completely undeserved. Our typical holding period for a stock is three years. We buy shares because we think they are worth more than their trading price, and we wait for that value to become obvious to everyone else (assuming our assessment was right). When a stock doubles just three weeks after we bought it, it can’t possibly be because our assessment of it was correct. It is luck, plain and simple, and it can just as easily go both ways.
Recognising luck’s role is something we all tend to be good at on the downside. When a stock price falls, it is just the market being the market. When one rises, though, we tend to attribute the gain to our own brilliant insights and analysis. You can’t have it both ways and the truth is that, particularly in the short-term, lady luck has a bigger role to play than any of us would care to admit.
We will know in a few years’ time whether we were right to buy Whitehaven at $0.38. Until then, we have banked some lucky profits.
Our March Quarterly Report (now mobile friendly) discusses Whitehaven, as well as RNY‘s latest results (horrible), Service Stream (one we should get a gong for) and a new addition to the international fund, Baidu.
And don’t forget online applications are up and running (scroll to the bottom of this page). From start to finish in under 10 minutes and all electronic.
3 thoughts on “Good, Bad and Lucky in 2016”
kept working that emotional intelligence, SJ
EQ will exceed luck several times over, and over again in the long term…
luck… merely reinforces those clever dicks at pretending to know the unknowable…
In your report you say:
It’s worth noting that while the stock trades in US dollars, its business is all transacted in Chinese Renminbi. Any massive devaluation of the Reniminbi would hurt. We’ve largely removed this risk through currency hedging.
I’m invested in the fund and am curious as to how you actually implement this currency hedge? (I’ll gladly admit to knowing next to nothing about currency trading). What sort of instruments (if that’s even the right word) do you buy and from whom? (I’m not asking you to disclose your counterparty – if it’s JP Morgan/Citigroup/UBS/Barclays etc then ‘a major wall street/international investment bank’ will more than adequately satisfy my curiosity) Given that it’s a value fund – presumably the instruments would need to be reasonably long dated so as that they match the investment horizon. Are these sort of instruments expensive?
True, luck plays a part. But I am a big believer in “creating” your own luck too. Just the same as people who “create” their own bad luck. People like buffett or musk, are they just lucky or do they create their own luck? Sometimes bets don’t pay off but you can try to stack the odds in your favour. By doing your research on stocks you are stacking luck in your favour.