When it comes to Wall Street, there is no exact science to predict how much and when a stock will jump or fall…but that doesn’t mean we’re shooting blind.
The investment world is truly a strange and wondrous land.
For those of us that have truly spent time in this magical place, we’ve seen some of the most amazing things happen when it comes to how money can TRULY move.
I’ve seen stocks that were veritable “sure things” sink like a lead balloon…and I’ve seen longshots go all the way to the moon.
I’ve also seen the opposite. Sometimes, “sure things” do exactly what they were expected to do, while risky longshots disappear into obscurity.
When you witness the full gamut of what can happen to any given stock during an average day on Wall Street, you have to wonder…
Is there any rhyme or reason to this? Or is it all just a big game of chance?
The answer is to both these questions is a resounding “yes”—but at the same time, “no.”
Is there rhyme and reason to the way a stock performs? Absolutely…
But is it that stock’s performance completely predictable? Absolutely not.
Half Science… Half Magic
When I first got into this business almost 20 years ago, my mentor told me something that I’ve never forgotten…
While going over some of the stocks I was tracking, he sat back in his chair and said, “You’ve got a solid list of companies right there, but I want you to keep one thing in mind. When it comes to this thing we call ‘investing,’ half of it is science…and the other half is magic.”
Now, for somebody new to the business, this didn’t make sense right away.
“What do you mean ‘magic’?”
Of course, that’s not really something that you can explain, right?
How do you explain the “magic” of the investing world?
You simply have to accept that fact that you can do EVERYTHING right—researching your stocks, studying trends, compiling all the information that supports the hope that the stock will soar (because that’s really all it is)—and it could still be a stinker.
However, the one thing that is the ultimate key to success in investing is knowledge.
It’s for this very reason that many of us spend hours a day pouring over information—even if some of it is ultimately meaningless—in the hopes that it could lead us to the diamond-in-the-rough that will net us returns that we’ve only just dreamt about.
You’ve heard the adage “knowledge is power”?
Well, in investing, it’s really the ONLY power we have.
Leveraging Our Only REAL Power
Warren Buffett credits his decades-upon-decades-upon-decades of success to one simply thing: really KNOWING the company he’s investing in.
He doesn’t approach a stock all willy-nilly…
He does such a deep dive on the company behind the stocks in which he’s considering investing that I wouldn’t be surprised if he knew when the maintenance workers took their bathroom breaks.
However, history will show you that even some of Warren’s picks have been duds.
We can only do what we can do…
From the moment that money leaves your account to the moment you finally hit your price target, the outcome is out of your hands.
That’s where the “magic” comes in.
If the odds are in your favor and if everything goes to plan, you’ll most likely make money…
However, if there is a hiccup along the way… or if the CEO makes a funny tweet (yes, we’re looking at you, Elon Musk)… your “sure thing” could turn into stinker quicker than you can say “greed is good.”
So, if your portfolio is full of winners…good job!! You’ve done your due diligence and have used your knowledge to the best of your ability.
However, you should also send up a prayer or positive thought to whatever higher power you ascribe to, because there is a LOT more to this than just making sure you have all the correct information.
It’s about doing what you can in the first part to influence a positive outcome with the second part…
Now, let’s go out and make some magic happen!
“The world is full of magical things patiently waiting for our wits to grow sharper.” – Bertrand Russell