Investing is a humbling game. You can build the most detailed discounted cash flow model, scrutinise every footnote in the annual report and interrogate management until you’re blue in the face… and still get flattened by something that comes out of left field.
Look at Corporate Travel Management (ASX:CTD). For years it delivered impressive earnings growth and pumped the bags of shareholders, before revealing it had been more than a little naughty overcharging customers and booking revenue it never earned. Trading was suspended for over a year, and when it finally resumed the stock crashed 85%.
Unless you had forensic accounting skills and access to the internal ledgers, there was no way to see that coming.
Other times investors are handed a windfall for reasons nobody saw coming. When Russia invaded Ukraine in early 2022, thermal coal prices surged more than 200%, and that spike pushed Whitehaven Coal (ASX:WHC) to the top of the ASX leaderboard that year. Anyone holding the stock before the invasion had no idea what was about to happen. They just got lucky.
None of this means the sharemarket is a casino. It just means luck is real, and ignoring it is foolish. More importantly, you can set yourself up to invite more of the good kind.
The amount of work you do is the obvious place to start. Peter Lynch liked to say that if you look at ten companies you might find one you like, and if you look at fifty you’ll find five. The person who turns over the most rocks wins.
You also need a bias toward action. Sitting behind a screen running stock screeners only gets you so far. The steady discipline of reading, thinking and talking to people puts you in the path of luck, and it helps you recognise an opportunity when it turns up. As Louis Pasteur put it, chance favours the prepared mind.
And you need to show your work. Jason Roberts coined the idea of a “luck surface area”: your luck grows in proportion to the quality of the work you do and how widely you share it. Write down your research, publish your thoughts and talk to other investors. (That’s kinda the whole point of Strawman.)
Persistence is the other big driver. You just have to stay in the game. The investors who look lucky are usually just the ones who hung around long enough to catch a break. But luck can’t help you if you’re wiped out before it arrives. Debt, oversized positions and panic selling turn temporary bad luck into permanent ruin. Size your positions so a nasty surprise hurts without knocking you out, and your good ideas get the time they need to compound.
Lastly, stay humble and remember that the easiest person to fool is yourself. If you convince yourself that every win was pure genius and every loss was just bad luck, you’ll learn all the wrong lessons and set yourself up for a disaster down the track.
You can’t control how the dice land. But you can control how many rocks you turn over, how well you understand what’s under them, and whether you’re still standing when the breaks go your way.
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