70% Correct x 70% Correct Equals 49% Chance Your Investments Will be Successful

If you are on YouTube, you will be recommended many videos the algorithm determines that you like. Very often, these are the sub-genres that you have been viewing recently.

I was pushed to this video, and I continue to watch it because I thought the production was pretty good. After I think this video is pretty good that you would have different takeaways from it.

Charlie Chang went to this expensive subscription gym and asked a few people various money and career-related questions. The people interviewed gave some excellent advice if you piece the whole interview together.

I particularly like the answer from Jim, the 55-year-old retired investor. Jim gave this excellent advice:

If you can be 70% sure of what you are buying and 70% correct when you sell it, there is a 49% (0.70 x 0.70) chance that you can be right on an investment. There is a possibility that what you buy can continue to go down, and what you sell will continue to go up. The idea that you get both buying and selling right and never wrong will not happen.

Before this, I had only heard Nobel winner Robert Merton describe it this way. There is a 50% probability of getting the buy right and a 50% probability that you get the sell right, so the probability that investment would work out is 25% or a one in four chance of it being successful.

Jim likely means that you can try to be sophisticated and push up the odds for both to be closer to 70%. Even then, you may still have a 50% chance of the investment not working out.

Traders have tight or loose indicators to get out when the trade is not working and may only get into positions if the risk versus reward is more favourable to them.

However, trades will still not work out. Math-wise, if the expected return is positive, and if you iterate the number of trades enough, your odds of compounding your money greatly improve (if you are a robot that can keep the behavioural aspects in check).

Many investors don’t do so many iterations of buying and selling their investments. The math equation Jim and Robert Merton mentioned is not immediately intuitive. They don’t realize the odds of getting buy and sell right, even if you are sophisticated, may only be pushed to the high 60% (in their minds, this is closer to 90%. )

So they would put in a large chunk of their net worth, which means 3 out of 4 times, the investment ends up not working well.

Here are some of the other notable takeaways:

1. Start small when learning to trade from the person working as an options trader. He lost a lot of money initially. Learn from someone more genuinely sophisticated.
2. The options trader sells put options for his own money. (Take what you can derive from this little bit of info). He plays down his big wins and plays up his big losses but does drop that most of what he usually earns is based on “basis” (which likely means the earnings are calculated in basis points).
3. Be proactively reactive instead of reactively proactive.
4. Biggest failure: Lost $205,000 in a day based on one trade. He was overleveraged. Took him 2 years to clear that bad trade.
5. Look at yourself as a business, reflect upon what you are good at and your skills, and realistically assess whether you can make enough money doing what you are good at. Also, think about whether it is worth the risks.
6. Jim says to ignore the noise and think long-term.
7. Jim says to buy what makes money NOW and not in the future (regarding whether its investments, stocks or real estate)
8. Jim says he failed to realize early that failure can be an excellent opportunity to analyze yourself and kick your butt.
9. In terms of business, Jim says go for it EARLY and focus on the significant marketing issues.
10. If you aspire to be self-employed, you may need to hold a part-time job to keep things going while working hard on your skillset.
11. Daily habit: Write down three wins for the day, feel glad about and focus points.
12. Develop your own budget.
13. Buy land. Land value always goes up.

Of course, Charlie wanted to find out why they paid so much for the gym membership. Here are the reasons:

1. The place’s vibe gives you the energy you don’t get anywhere else or if you work out alone.
2. Great place to network, especially if most members are high-income.
3. A few people teach there, which is interesting because they don’t exclusive teach there.
4. Health is wealth.
5. If you go there often, and the quality of the amenities is excellent, then it is a bargain.

I invested in a diversified portfolio of exchange-traded funds (ETF) and stocks listed in the US, Hong Kong and London.

My preferred broker to trade and custodize my investments is Interactive Brokers. Interactive Brokers allow you to trade in the US, UK, Europe, Singapore, Hong Kong and many other markets. Options as well. There are no minimum monthly charges, very low forex fees for currency exchange, very low commissions for various markets.

To find out more visit Interactive Brokers today.

Join the Investment Moats Telegram channel here. I will share the materials, research, investment data, deals that I come across that enable me to run Investment Moats.

Do Like Me on Facebook. I share some tidbits that are not on the blog post there often. You can also choose to subscribe to my content via the email below.

I break down my resources according to these topics:

1. Building Your Wealth Foundation – If you know and apply these simple financial concepts, your long term wealth should be pretty well managed. Find out what they are
2. Active Investing – For active stock investors. My deeper thoughts from my stock investing experience
3. Learning about REITs – My Free “Course” on REIT Investing for Beginners and Seasoned Investors
4. Dividend Stock Tracker – Track all the common 4-10% yielding dividend stocks in SG
5. Free Stock Portfolio Tracking Google Sheets that many love
6. Retirement Planning, Financial Independence and Spending down money – My deep dive into how much you need to achieve these, and the different ways you can be financially free
7. Providend – Where I used to work doing research. Fee-Only Advisory. No Commissions. Financial Independence Advisers and Retirement Specialists. No charge for the first meeting to understand how it works
8. Havend – Where I currently work. We wish to deliver commission-based insurance advice in a better way.