Luck, like bull market, can create self-delusion

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It was a relatively easy 8-iron shot, over a pot bunker and a 10-foot-deep, 15-foot-wide swale in the fairway to a fairly level green about 130 yards away. |ret||ret||tab|

All I had to do was hit down on the ball and drop it on the front of the green where it could release and trickle back to the pin.|ret||ret||tab|

I bladed it! Bladed it! |ret||ret||tab|

But, as the gods of golf sometimes do when in a capriciously benevolent mood, they allowed the ball to bounce over the bunker, skitter and skip down and back up the swale and come to rest no more than six feet from the pin.|ret||ret||tab|

As the dour Scottish caddy slung the bag over his shoulder he grinned. "Ye hit a O.J. Simpson,'" he proclaimed.|ret||ret||tab|

"A what?"|ret||ret||tab|

"An O. J. Simpson ye stabbed it an' gah away wi' it."|ret||ret||tab|

The moral of the story? I'm not sure there is one, other than to encourage you, should you be golfing in Scotland, to employ caddies. |ret||ret||tab|

They will help you negotiate the courses better, save you from losing those Titleists and Precepts in the golf-ball-gobbling heather and gorse, and (here's the best part) will provide enough humorous (and frequently critical) comments to entertain your 19th-hole golfing friends for hours.|ret||ret||tab|

Come to think of it, maybe there is a moral. How about this: Sometimes luck makes us believe we are better at a task than we really are. For example, that would certainly have been true for a lot of traders who were wildly successful during the 1999-early 2000 period when the IPOs, dot-coms, and techs went through the roof. |ret||ret||tab|

A young man I met in Honolulu left his job to move back to the mainland to be a full-time trader because he had been so successful placing all his money in Amazon.com! |ret||ret||tab|

A doctor I talked with had all his corporation's retirement plan monies invested(?) in Cisco.|ret||ret||tab|

A few weeks ago, a successful couple in their 30s placed their investments under our management. The husband explained that he had come to realize that the old expression, "don't confuse brains with a bull market," was right, and that while he had done very well during the NASDAQ run-up, he had given it all back and then some as the markets came down. |ret||ret||tab|

That is fairly typical of what we are hearing from new clients, when we ask why they are interested in professional money management. (Although it might sound counterintuitive, we acquire more new clients during bad markets than good. Seems everyone is an investment expert when markets are going up!)|ret||ret||tab|

Moral repeated: Sometimes luck makes us believe we are better at a task than we really are.|ret||ret||tab|

This is my 46th column about rational investing subjects such as screening companies for balance-sheet strength, setting under- and over-valuation parameters for issues, allocating assets relative to your risk tolerance, etc. |ret||ret||tab|

In a nutshell it might read like this: Successful investing is based on three key factors: 1. Employ a logical method. 2. Exercise discipline in staying with the method. 3. Have patience. If you do not have the time, resources, or talent to do all three, talk with a professional.|ret||ret||tab|

For those who insist on doing it themselves, here are a few pointers:|ret||ret||tab|

If you can't explain to your spouse in three minutes or less why you acquired a particular equity, you don't know enough about it to own it. |ret||ret||tab|

Don't buy a mutual fund on the basis of one year's performance. (Think Janus, Munder, et al. for what can happen.)|ret||ret||tab|

Don't let the media design your portfolio. (Maria Bartiromo may be cute, but for crying out loud, she's just a reporter.) |ret||ret||tab|

Do not try to time the markets. |ret||ret||tab|

Don't fight the last war. The fact that a company, industry or sector has performed well this year doesn't mean it will repeat next year. (There may well be better opportunities among the previous year's under-performers.)|ret||ret||tab|

Accepting Wall Street analysts' recommendations at face value can be dangerous to your financial health, so do your own homework. (Does the name Henry Blodget ring a bell?) |ret||ret||tab|

Placing money in investments is like getting married or having kids. If you wait until everything is perfect, none of them would ever happen.|ret||ret||tab|

You will learn more from your mistakes than your successes, but only if you will admit them. (Ego, especially the male ego, too often overrides logic.)|ret||ret||tab|

(Clark Davis is a 30-year investment veteran and CEO of Saint Louis Investment Advisors, a specialized money management company. Ques-tions or comments can be directed to him by mail via The Springfield Bus-iness Journal, 313 Park Central West, 65806 or by e-mail at sbj@sbj.net.)[[In-content Ad]]