Monday, November 7, 2011

Investing as a Skill

I am now reading a book by Jerry Yang called "All In".  Jerry Yang is an Hmong immigrant from Laos who came to the U.S. and in a very short period of time won the World Series of Poker in Las Vegas. 

It is a very interesting book for many reasons, one of which is that I have never read a story about the horrors the Hmong went through in their native country.  In the U.S., we pretty much only hear about how bad the Holocaust was.  Yes, the Holocaust was horrible, and it's sheer magnitude is astounding.

But that is not the only horror that occured.  Many have occured more recently, and continues to this day all over the world.

Anyway, that's another topic. 

What struck me about this book is how Yang became a strong poker player and got to the top in Las Vegas. 

He watched a lot of Poker on TV and took notes and studied hard.  He played freqeuntly in local tournaments and meticulously took notes, asked a lot of questions to learn from better players, he analyzed his own playing to see what he could have done better etc...  The sheer effort is very inspiring.

Why does this strike me? 

Because a lot of things, for some reason, are taken for granted and people tend to brush things off with words like "talent".  Oh, he's talented.  Oh, he has a knack for this or that.

But the fact is that behind a lot of success is a lot of hard work.  I know this sounds obvious.  We all understand that.

But somehow, in certain areas of life, people tend to forget that.

And I think this is particularly true in the world of investing.  I have spoken to all kinds of traders and investors, pro and amateur for many years and it's always amazing that a lot of people don't really take investing to be a learnable skill.

Oh, I'm not as smart as Warren Buffett, they'll say, so they'll speculate in penny stocks where people just email me tips.  Oh, I have no luck with stocks so I will speculate on 100-1 leverage in the foreign currency markets (they think they can't be Buffett but they can suddenly become a George Soros).

Even for Warren Buffett, it took a lot of effort to get where he is.  He was not just some smart guy that tended to have knack or special talent to pick stocks.  The guy read all the investment books available at the local library at an early age and spent much of his early career just reading financial reports for many hours every single day (and continues to do this to this day).

Michael Milken (not a hero today, but) used to carry a duffle bag full of financial reports on his long, daily, commutes. He knew more about companies than many other people and that helped him develop his business. 

Speaking of Warren Buffett having read every single investment book at the local library, Bobby Fischer too, did the same thing at an early age.  He went to the Brooklyn Public Library and read every single chess book they had there, and he actually spent time memorizing information in those books he thought would be useful.

Talent? Knack?   Maybe at some level that is required.

But what sets the Buffetts and the Fischers apart from everyone else is the sheer effort they put into trying to get better.  (This is not to say that anyone can be a Buffett or Fischer, of course.  But it's true that anyone can get better with some work).

Let's get back to investing. 

I don't know why, but for a lot of other things, people understand that you have to work at it to get better.  Nobody buys a violin and then surfs the internet and tries to find a website that will promise that they can be virtuoso violinists in five days.   Nobody buys a piano and tries to learn how to play in a week.

Even sports like tennis, nobody expects to be able to learn how to play quickly.  They will commit to weeks and years of lessons to get better, and if they are serious they will enter tournaments (as playing tough competition is a must in improving at anything).

But when it comes to investing, for some reason, many people feel that hard work is not necessary.  If only they can find the right website that will show them how to make money without much effort.  Or the right technical indicator.   Or the right 'system' that promises the an instant fortune with very little money down.

People will buy stocks on a tip, lose money and then condemn Wall Street as a bunch of criminals and swear off stocks.

They will buy internet stocks at the peak of the bubble, lose money and then conclude that stocks are no good.  Or they will assume they have no 'knack' for timing the market.  Or they will blame the immoral banks and conclude that it's impossible to make money in the rigged markets (this is true if you try to play by *their* rules; yes they will take what they can and cut you up so you have nothing left!).

They will buy a bank stock at 0.8x book and it will go bankrupt and conclude, again, that stocks are too risky and no good.

But many people won't take the time to try to understand the process of investing.  It's actually a little mindboggling.  I guess for many people, the stock market is no different than a casino (or at least the slot machine side of the casino); they just make bets and hope for the best.  Whatever happens is good luck or bad luck.

It's OK to not be interested in investing.  For most people, an index fund will do just fine.

As Peter Lynch used to say, he was baffled that people spent more time investigating, analyzing, comparing and studying refridgerators, for example, than when they buy a stock even when the investment in the stock is many multiples higher than the money spent on a refridgerator.

This is so true.  People will comparison shop and be very careful about purchasing a PC, tablet or smartphone, but they will tend to spend tens of thousands of dollars on a stock with very little work or analysis.

Anyway, when I read about guys like Jerry Yang, I realize how similar everything really is.  It is very inspiring to read about people who worked hard at something and got good at it.

By the way, I also read a couple of books about Ichiro and it's the same story.  He spent many, many hours every single day practicing baseball from an early age, and his work regimen continues to this day.  This is how he became a great ball player.  I haven't read a Ted Williams book,  but he was apparently the same.   He was obsessed with improving his hitting.

If one wants to improve as an investor, it will take a lot of work and experience.  Of course, not everyone will want to do it and that's fine.  It's just a little confusing to me when people have a hard time in the stock market and blame all sorts of things and don't really seem to understand that investing is like anything else and will take a lot of work to get better.

1 comment:

  1. I am new to your blog and I think its great. I like this post a lot from just a general life approach thing. If you listen to all the great money managers (include Soros), you realize how much they know and they must have been constantly learning all the time. The thing Munger said about how his kids think of him as book with legs is really revealing. Anyways, I like your blog a lot and please keep up the good work.


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