Saturday marks a year since the legendary country singer Kenny Rogers passed away. Although the world has changed dramatically since Ken passed away, there are still plenty of pearls of wisdom (or Aces to Keep) from his most popular song, The Gambler.
You've got to know when to hold 'em
Former NBA General Manager Sam Hinkie once wrote that when running his basketball team he wanted to have “the longest view in the room”. Other teams would often be so desperate to be successful immediately that they would overpay for current assets (players in their prime now) and sell future assets (players who are still developing) on the cheap. Hinkie would be happy to trade away one player who is good today if he could get back two players who would be good in three years’ time.
Having the longest view in the room also helps investors when markets are choppy. Whether it’s rising bond yields, trade wars, inverted yield curves, etc, there will always be new developments to worry about when investing in shares. If you don’t think these developments are relevant to your long-term view of your investments (e.g. what impact does Brexit have on BHP’s earnings?) then you probably should ignore them.
Know when to fold 'em
It is common for investors to get caught in value traps. They buy a poorly-performing stock because they think it’s become cheap, and then the stock continues to perform poorly (think AMP, Telstra, etc).
Being a contrarian investor only works if you hold a convergent view AND you are proven to be right. When your investment thesis is flawed, it’s usually best to cut your losses rather than double down and hope for the best.
Know when to walk away
Your brother-in-law has a hot tip about a penny stock miner?
Know when to run
Somebody on the internet reckons they’ve got a proprietary FX trading system that’ll help you quit the 9 to 5?
You never count your money when you're sittin' at the table
It’s common to hear someone say that they’ve made money in shares, property, etc, but paper gains can’t pay for your next trip to Woolies. If you’re sitting at the table your winnings are at risk, and investors should keep that in mind when evaluating their profits and losses.
There'll be time enough for countin' when the dealin's done
Australia is a nation of punters and it’s all too common to see investors punt with money that’s supposed to fund their retirement or pay for a home deposit.
In his classic Where are the Customers' Yachts?, American stockbroker Fred Schwed opined that the difference between speculators and investors is that speculators try to turn a little into a lot, while investors try to prevent a lot turning into a little.
You can be a speculator with money you’re ok with never seeing again but be an investor with money that you need to last for decades.
Nicholas Stotz is a Dealing Associate at prime brokerage firm, Lazarus Capital Partners. This article is general information.