This is because there’s no way to guarantee success by copying what others are doing when they got lucky. There is no lesson to be learned from luck. It can’t be applied to future situations, because those exact conditions or factors will never line up in the same way again.
The same logic applies with investing. Luck and long-term success are two very different matters, and only one is achieved through repeatable practice.
Studying someone’s luck only gives you the ability to look back at what they did in one very specific situation. It is not applicable to the future as a broad lesson. Those who treat it as such usually find themselves at a loss, quite literally.
Financial success can be a case of monkey see, monkey do. But only regarding things we can control.
We can’t control the ups and downs of financial markets. One thing you can be certain of is market uncertainty, so even if it looks like people are getting “lucky” from having all their eggs in one basket … give it time, and things will swing the other way.
We can control our commitment to developing a long-term strategy, being patient and minimising risk where we can.
Psychological study suggests we assess risky decisions on a scale of hope and fear. We hope things turn out well. We fear they will not. Whichever is the stronger motivator at the time determines whether we charge ahead.
For example, during the dotcom bubble of the 1990s, hope was high. People jumped in with both feet and all their savings to invest in the thing that had made some people rich. When the bubble burst, that hope turned to fear and lost confidence – specifically for internet companies. A broader lesson about diversification was not so easily learned, as has been proven in more recent years with:
1. Cryptocurrency and NFTs, a notoriously volatile area which continually draws in hopeful investors despite lax regulations worldwide and a string of spectacular mismanagement and failure from big trading platforms.
2. Our over-inflated housing market. Many still believe bricks and mortar to be the only “sure” way to make or hold wealth; but the lending environment today is not the same as it was in better times, and the risks involved with taking on such huge mortgages is becoming more obvious as rates rise around the country coupled with house price declines not seen since 2008 – 2009.
You can invest in whatever you like, but if you want to secure your financial future, don’t bet the farm on history repeating itself exactly the same way.
Instead of basing your investment strategies on what has only worked for a lucky few, you should consider working with a trusted financial adviser, a fiduciary, to create a plan tailored for your unique situation and goals.
Any adviser worth their salt will focus on the tried and true, using proven methodology not to target “hot” industries or stocks, but to implement strategies that will work to capture the fullness of market movements over time.
It might be thrilling to imagine yourself as the exception to the rule, becoming fabulously wealthy from being in the right place at the right time. You will find good investing very dull by comparison, but also much less stressful should things go south in the global markets.
Significant financial gains without a good strategy and discipline could happen for some fortunate soul. Statistically speaking, it will likely not happen to you. When it comes to planning your financial future, it might well save you time and anguish to sit down with your local, trusted adviser first.
- Nick Stewart (Ngāi Tahu, Ngāti Huirapa, Ngāti Māmoe, Ngāti Waitaha) is a Financial Adviser and CEO at Stewart Group, a Hawke’s Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions.
