Iām still pretty new to investing. Intend to primarily invest in long term positions.
That said had a great result this week on a short term position. I know more about the company than just about any other, understood the dynamics of the unique situation it was in this week, knew that today would be the day where if my read was right I would lock in a profitā¦ but in terms of how I did quite as well as I did in terms of the precise timing of the sale and therefore the level of profit, frankly that was down to luck. At the wrong time of the day, Iād have made less than half. Therefore Iām not getting carried away, my primary aim remains to invest in long term positions, with a long term purpose. I know that this will be more profitable and less risky in the long run.
Nonetheless, something goes well and itās natural to want to do more of it. Iāve spent about half an hour trying to figure out which companies I feel that I know well enough that in similar circumstances Iād consider similar action. The truth is, I could count on one hand the number of companies I currently understand better than that one, but I then found myself trying to rationalize āwell I know this one well enoughā.
So my question is, if you do something outside of what you primarily intend to do, and it goes well, how do you separate looking to learn the lessons from it (which is just good common sense whenever you have a big success or a big failure), from the instinct to do more of something because the last time went well?
@Hornet welcome to the forum and your post is explained by yourself magnificently. I think you answered your own question. The position that you made good profit on was down to luck as much as it was your timing. If you try and replicate the exact same scenario again,where Luck & Timing meet as one,then you will make money BUT that will only happen maybe 1:30 times and therefore you will lose plenty.
Without any shadow of a doubt stick to the long game.
My personal opinion is the the short game is akin to gambling which can be very addictive. All the best in your investment journey
You could allocate a small portion of your portfolio for riskier transactions and see how you get on. I did this with my profits after a couple of months and it wasnāt long before the riskier side soared and dwarfed the main portfolio. I changed my thinking at this point and went all in on the riskier but obviously Iām not advising you do that. It may give you pause for thought down the line though.
You could try @NoBeef suggestion,if you have the time and you donāt mind being totally consumed by your short term investments,(my opinion) I would also add that for the past year the majority of shares have been rising,to correct the massive decline because of the covid effect. You could say the past 20 months have been unprecedented
I think you have a good mindset already. Understanding that you canāt try to replicate the same luck, is something that takes new investors time (and often a lot of money!) to learn. If you keep trying to take lessons like these youāll do well long term.
Also, I would recommend having an investment strategy written up if you donāt have one already. Define what type of investor you are, what to look for in companies, asset allocations, how to define risk, etc. You can refine it slowly over time but stick to it, donāt make investment decisions without consulting it. Think about the long term, and after a few years you will trust your strategy and it will keep you away from your emotions.
I think I did myself a slight disservice.Making a profit of some description was predicated on me correctly understanding the situation (if I correctly understood there was ādefinitelyā some profit, the luck was in the level of profit and the risk was in me being wrong).
In terms of strategy Iāve more or less outlined it below, but basically 70% relatively safe investments (obviously I hope to beat the market on those but Iāll be over or under by a bit), 20% investments that make sense on average over the long term but with more risk involved and more decision-making, and 10% where in principle I could consider doing this sort of thing. Still figuring out how I want to use the money that Iāve pidgeon-holed into those categories though.
I guess a better way of asking my initial question was, when youāre doing something a bit risky, how do you go about judging the risk-reward ratio when the risk factor is ultimately how confident you are that youāre right.
I imagine you ask yourself what you are willing to lose for the risk. Of course itās personal. Which is why iit shouldnāt be financial advice coming from someone else unless they are qualified (lol).
edit: so i guess you ask yourself what you can lose so the smaller bet on a high reward keeps the risk asymmetric - which happens to be easier to do when one is poor.
