| Very sound advice. I would add this quote from Fooled by Randomness: Unfortunately, the inherent randomness of stock markets means that, just like millions of monkeys hammering on typewriters for long enough can eventually produce Shakespeare, so can unskilled investors produce great track records. In fact, it is very likely that some will. Consider for example a cohort of 10,000 investors who, for the sake of argument, are relatively incompetent: each year they only have a 45% chance of being profitable. In other words, you would basically be better off investing based on the flip of a coin. Nevertheless, despite their lack of skills, after 5 years based on probabilities alone we can expect almost 200 of them to have been profitable every year. They would boast flawless track records and enjoy praise for their exceptional skills. Of course, in the long run, the randomness that sustains these “acute successful randomness fools” will turn against them. Wall Street has seen many traders, who after years of success have one devastating quarter where they lose everything in one huge blow-up. Often their short-lived success was due to the fact that they simply happened to be at the right place at the right time, i.e. pure luck. We often mistake luck and randomness for skill and determinism. |