An investor success can be sustained or not? how to verify?


Relative discussion in my books

In my last two books, I have discussed how to examine whether an investor’s success can be sustained. included:

In my book “The Rules of Super Growth Stocks Investing“:

  • Sections 1-5, pp. 64-67, Discussion on “Using Three Criteria to Select Trustworthy Investors”

In my book “The Rules of 10 Baggers“:

  • Section 1-2, pages 33-35, discussion on “Is it worth learning to use the three criteria to judge successful investors”

All investors want to have a sustained investment return. But how to check? or is there any way to help us to screen?

In Sections 1-5 of my book “The Rules of Super Growth Stocks Investing“, I listed 3 screen criteria to help investors select trustworthy and successful investors. After the publication of the book, many people have received some opinions on this topic one after another. I originally made this list based on my own observations for many years, combined with the achievements of many recognized investment gurus, and I believe that readers will definitely have such a demand (especially investors who have just invested in the stock market, or Investment novices).

Three inspection standards

Now, in addition to the three points originally listed, I think there is one thing that is a myth of most people, and it is necessary to explain it. Readers can also use another method to quickly examine whether a successful stock market investor can continue to succeed-to examine whether he can make substantial profits from more than three different stocks in different periods of time.

Why the emphasis on “in different periods of time?” In Buffett’s 1961 letter to shareholders, Buffett specifically pointed out: “It is my feeling that three years is a very minimal test of performance, and the best test consists of a period at least that long where the terminal level of the Dow is reasonably close to the initial level.”

In his letter to shareholders in 1962, Buffett explored again: “While I much prefer a five-year test, I feel three years is an absolute minimum for judging performance.”

At least the record of an investor who has experienced more than one market cycle can be objective enough to stand the test.

Why use these 3 instection standards?

  • Investors who can make substantial profits from more than three different stocks at different times period and obtain a sizable return are unlikely to rely solely on luck. Without a stable and consistent investment method, it is impossible to achieve such an achievement. Based on this inference, he can definitely rely on the same set of investment methods to continue to achieve success and make profits in the future investment road.
  • It is possible to only bet on a specific stock (I am personally opposed to this), and it is possible to get a eyes-popping return; but it is very unlikely that ordinary people can get rich and exit the arena by this. However, if the investment results cannot be sustained, they will definitely lose everything they earn.
  • Unless your one-time investment capital is unusually large (this is not operability for petty bourgeoisie or most retail investors), you use illegal means to obtain inside information and dare to bet your entire net worth (here again: I hate cheating insider trading very much. Insider trading is illegal in every country in the world. Investors should not try the law by themselves), bet to guess right with the blessing of the god of fate.
  • Unless you are a shareholder of a listed company or the founder or major shareholder of a large company, it is unlikely that an average person will get rich just by investing in a stock; it is not impossible, and the probability is very low.
  • As I have repeatedly emphasized, long-term investment is possible to get rich. Sustainability is very important on this investment road. Our goal is to continue to make money from the stock market, not to fight guerrilla warfare or three days of fishing and two days of surfing the net. The game mentality of gambling cannot make you big money.
  • Because the story of getting rich by investing in a specific stock has never stopped in all kinds of media, because this kind of story is very topical and can attract the audience; and most people still hold the stock market to make quick money. Hope to use a similar dream way to get rich overnight. People are forgetful, and the media is unlikely to keep following the same story. Everyone has forgotten that most of the protagonists of this kind of story will not end very well: for example, return to the average, want to bet bigger and then retire from the stock market, but the good luck will always run out and gradually lose. The other type is to continue to gamble in the same way, and this type of people may go bankrupt. Especially those who gamble by luck when they are very young are not a good thing.

The possibility of luck

Investing in one gear to earn ten times, the possibility of luck is not small. Investing in two gears to earn more than ten times, and can span different time periods (why? Because this can prove that it is not because the stock market has soared at the same time), the element of luck is very low. If the investment in the three gears has earned more than ten times, then I dare to pack the votes, it cannot be luck, but ability!

Buffett said: “You only have to do a very few things right in your life so long as you don’t do too many things wrong.” This is also what I have repeatedly emphasized in my book and blog: Investors only need to choose two or three stocks in their lifetime to make you very rich. You don’t need to hold too many stocks, but the premise is to hold them for a long time.

About good companies are rare, I suggest you refer to my other blog post “Great companies are rare, two or three will make you very rich.”

credit: Freepik

Why past record matters ?

Past records are very important. Past records are history and cannot be changed; especially only records that can be tracked and sustainable can be trusted. People have inertia. Once a behavior becomes a habit and the way he behave, it will be very difficult to change it. The same is true on the road of investment. Once you have embarked on the road of success and have proven successful, it is unlikely that you will suddenly fail in the future. This probability is very low.

This is why Bill Parcells said “You are what your record says you are.” and Charlie Munger said: “There is no better teacher than history in determining the future.”

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