5/22/2011

Is Investing a game of Skill?

Is Investing a game of Skill? .. if so then you should be able to play to loose


It’s really not that simple if your goal is to profit from shorting stocks. The best short ideas just can’t be shorted with popular online brokerage accounts.I tried shorting horrific penny stocks created only to enrich the organizers of the pump and dump scheme but I was never able to sell short.

The short term direction of a stock is random at least for most investors including myself.

It’s how random events are managed that tilts the investing game long term to reward a small measure of superior skill.

We investors as a group seem never able to fully control our emotions when it comes to avoiding losses. They say the pain of a loss is far more painful than the joy of an equivalent gain. It is for me. Blame it on evolution they say this trait kept us alive by running at the first smell of danger. Even if you have superior skills and the odds are in your favor these emotions over time can spoil those abilities and make you a subpar investor.

The higher the stakes the greater the chance of irrational behavior as evolution takes control and we run for the exit. So we must build a unique individual investment allocation discipline implemented over time to help manage the inevitable emotions that can gripe investors with fears from a large investment forecast.

Value investing heresy: Tonight I can’t publish some of my work but I want to explore stocks that are receiving negative attention by an increasing short position. Is this the path of least resistance for potential short term gains, hedge or better alternative to holding cash? There seems to be learning opportunities from studying the short side. Much more to come on these topics.

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