Stock Advisor

A game of percentages

Equity investments are never perfect - it's always a matter of working to improve your percentages

A game of percentages

I'm not sure how many of my readers here are cricket fans but if you have watched any cricket at all, you may have heard the term 'percentage shot'. Conventionally, the way cricket used to be played, most batsmen would play only shots where as far as they knew, they were safe. If something unexpected happened, they could get out but that was never part of the plan. Nowadays, especially in limited-overs cricket, it's the time of percentage shots. The batter knows that there is a certain percentage risk of getting out and that risk is acceptable. Not doing anything and wasting a ball is itself a risk.

In equity investing, everything is a percentage shot. We like to fool ourselves, especially in hindsight, that something was a sure-shot investment but in reality, there is always a probability, with every single investment, that something can go wrong. In this sense, equity investing is essentially a percentage shot. There's always a chance of failure. Not just that, as you invest in a number of stocks and buy and sell over the years, there is a zero chance of not failing and actually a chance of failing often. Most investors who are choosing carefully would fail more than succeed.

But then what?
So, everyone fails; everyone makes mistakes. I do, you do, Warren Buffett and Charlie Munger do, too. The key question is, then what? What happens after that? That's the difference between investors who succeed and those who struggle. There are investments that did badly because of something that we did wrong, and there are those which were just a turn of events - something that no one could have predicted. Because of the Chinese virus, we have all had a lot of recent experience of how external events can bowl a googly, turning the surest boundary into a low-percentage shot. Many of us chose good companies but the lockdowns did tremendous damage to those businesses. Then, as we adjusted our expectations to this set of events, came a strong but uneven recovery, which brought a further set of surprises and again upended some calculations. At the end of the day, the lockdowns were something unexpected, something that can be ascribed to pure bad luck, a genuine black-swan event.

There are other kinds of investing failures that have occurred to many of us where it was something wrong with our own evaluation of a stock. Currently, it is clear that money is going to be expensive for some years to come. It appears inevitable. Now, it's not exactly rocket science to guess what happens to businesses when rates increase and which kind of companies do worse and which do better or less bad. Those of us who have been investors have been through such situations and yet, we have made mistakes that arise from this. The question is, are we going to make such mistakes again or did we learn?

As I said, everyone makes mistakes, the question is what we learn from them. It so happens that this is easy to say but hard to implement. As an individual investor doing your own research, it's a long process to make enough mistakes, learn enough lessons, test them out as well as institute a process of always analysing mistakes and never letting them go. Can you do it? I can't, at least on a personal basis. There's the problem of just the workload and also just the psychological difficulty of admitting to oneself that one was wrong.

Improving the percentage
So, we have established four things by now. One, equity investing is a percentage game. Two, the key to making more money is to improve your percentage. Three, analysing failures is important in improving the percentage. And four, it's hard for an investor to actually do this. So, where does that leave us?

That's where Value Research Stock Advisor comes in. When you are a member, you are no longer an individual who is trying to do an impossibly large and complicated job of making decisions, detecting failure and then trying to learn from it. You have our entire team doing that for you.

I'm not claiming that we do not make mistakes. Far from it. Currently, we have 56 recommended stocks but also eight stocks that we asked our members to quit. Things didn't work out as well as we had hoped for. That's fine. Quit them, learn your lessons and move on to so many others that did work out. That's how more and more of the percentage shots reach the boundary.

It's a team game. Come and let our team play on your side.
And what will you get as a member of Value Research Stock Advisor?

  • Access to all our (currently 56) stock picks
  • Best Buy stocks: 16 stocks selected from our recommendations. Use this set to start building your portfolio right away!
  • The complete investment thesis for all recommended stocks so that you understand why you are investing
  • New recommendations as soon as they are released
  • Continuous updates and analysis on all recommended stocks straight from our dedicated analyst team
  • Tools and data to research and analyse any other stock

Those are what we call 'features'. On top of that, we have this invaluable 'non-feature' - seeing what has gone wrong and making sure that it does not happen again.

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