Last updated: July 06, 2015



Investment luck gives way to skill

lucky charms

Investors need more than good luck charms to be successful Source: Supplied

LUCK and skill are among the ingredients needed for investment success, but getting the mixture right can be tricky.

Fortunes have been built on good luck and many lost because of bad luck, but financial experts say the role luck plays in your investing will decrease over the long term as your skills and knowledge grow.

"Predicting short-term winners is pure luck," says William Buck wealth advisory director Adrian Frinsdorf.

"Long-term returns are more likely based on planning. The reason for this is short-term events are impossible to plan for. Even those claiming to have called the global financial crisis surely cannot know when events such as the Bali bombings, 9/11 and other political shocks are to occur.

"Many who said they predicted the GFC were likely to have been predicting it every year for the 20 preceding years," Frinsdorf says.

Investors often try to push their good luck too far.

For example, shares in childcare company ABC Learning Centres - which operated a solid, low-risk industry - surged tenfold in the 2000s before becoming worthless in 2008 and dragged thousands of investors down with them.

"Many investors chase returns and base investment decisions on past performance," Frinsdorf says.

"This results in selling the losers and keeping the winners. However, last year's loser is often next year's winner."

HLB Mann Judd wealth management partner Darren Matthew says it is natural to want to be part of a success.

"Often investors buy investments when prices are high and unsustainable, only to feel the disappointment of an imminent correction," he says.

The emotional response in tough markets is to sell, even if it's a quality investment.

"Buying quality investments when prices are down and selling when prices look unsustainable can drive the performance of your portfolio," Matthew says.

"Remove emotion from your investment decision making. If investments are worth holding, stick with them."

Protecting yourself against bad luck is possible if you follow some key strategies.

The most important is to diversify your assets.

Having your entire portfolio in similar investments dramatically increases the risk of your portfolio, Matthew says.

Bank shares have boomed in the past year but that doesn't mean they should be the sole component of a share portfolio. Real estate values boomed last decade but have been flat for a few years. "Reduce your risk by investing in different types of investments," Matthew says.

Assist Finance chief executive Jason Di Iulio says balance is crucial.

"Don't put all your eggs in one basket and balance your investments," he says.

"It is the nature of the investment game to get some right, some wrong and even miss some altogether. No one gets their investments right all the time, but the best investors learn from their experiences."

Di Iulio says good luck plays a minimal role and people should remember that investing is an ongoing process. "It shouldn't be considered as a means for overnight financial success. Investments that purport to offer this sort of potential are usually too good to be true."

The chance of bad luck can be reduced by never investing in things you don't understand, Di Iulio says.

"Don't disregard new opportunities, but don't jump in without adequate knowledge and research either."


1. Have a plan and a strategy in place. If nothing else, it gives you a map to compare your progress against.

2. Understand where you are investing your money and the risks involved. If you're not sure about it, don't do it.

3. Get good advice from accountants, advisers and other experts in your area of investment.

4. Diversify your assets to broaden your exposure to growth potential and reduce the risk of suffering excessively from one bad investment.

5. Review all of your investments regularly to make sure they are not dominated by one or two things. If you are unsure how to do this, seek professional advice.


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