QUICK QUOTES
Chance Favors Only the Prepared Mind
In our publication, When to Buy and When to Sell: Combining Easy Indicators, Charts, and Financial Astrology (available on Amazon), we note some famous quotes regarding the stock market, investments, and financial astrology, from the likes of Warren Buffet, J.P. Morgan, Donald Reagan, and others. The quote “Chance Favors Only the Prepared Mind” was a statement by famous scientist/chemist named Louis Pasteur.
This quote originates from an 1854 speech in Holland, pertaining to logic and patience that allowed his associate to discover electromagnetism. The basic message of Mr. Pasteur’s quote, was two-fold, and can be thought of like the difference between Preparedness vs Serendipity.
Preparedness is the concept that chance (or fate) is generally not random. Long periods of study, training, and dedication are required to create “luck” or good fortune. The idea is that hard work and diligence will pay off in the end. The belief that preparing as much as possible is a far better approach to success, leading to controlling your own fate, without relying on blind faith (chance). Of course, lottery and casino winners do occasionally “strike gold,” but the probabilities are so low that it is not beneficial to rely on this type of good fortune for long term success.
Serendipity is the concept of an occurrence and development of events by chance, with a happy or beneficial result. Another words, fate, good luck, and happenstance, which is totally random. In financial terms it could be compared to a “roll of the dice,” or closing one’s eyes and throwing a dart at a board of stocks. Although there are no stated odds for success with the latter, it would be assumed that the probabilities would be lower.
Longer term investors generally prefer to research company fundamentals (See Chapter xx of our publication), balance sheets, ownership records, and expected earnings/revenues over several quarters into the future. They make decisions based on a much longer time horizon, and do utilize some technical analysis, often using the 200-day moving average as their basis for long-term trends. These individuals normally invest in companies with long histories of success, or dividends, whose goal is to compound their interest payments over time. Their approach is one of patience, knowledge, and strict risk management. There are other longer-term investors who may be active enough to recognize when a long uptrend is vulnerable, or reversed, and may choose to utilize funds for other opportunities, rather than wait longer periods of time for a recovery (that may never come). Either way, they are highly prepared, and patient, regarding their entry and exit points for positions.
Shorter term traders find their decisions rely on economic announcements, analyst upgrades/downgrades, global issues, volume, price action, and technical analysis. As a result, swing and day-traders often use shorter period moving averages (like the 5, 8, 20, and 50-day) in their attempts to “time” the markets for the short term. These traders have no shortfall of work and preparation that they conduct prior to each trade or trading day. They also prefer to leave little to “chance” and continuously follow market internals to raise their probability of successful trades. In some ways, they are even more attentive to the market than longer-term investors, who normally employ buy-and-hold strategy.
That leaves us with speculators, some of which are nothing more than “gamblers.” They rely on “hot” tips from anywhere they hear them, or randomly choose investments with little to no support behind their decisions. They chase stocks only after they have become popular names on the news, or have already experienced large run ups, or downs (when shorting). They hold onto any winning positions far too long in hopes of “hitting it big,” paying no attention to signs of breakdown or reversal. They are basically “serendipitous” in their though process, as greed overcomes sensibility. These individuals are not prepared and basically depend on the “luck of the draw.” They rarely find any consistent success in the markets, save for any fortunate/random gains, and have no real plan. Though there always the possibility of a hot streak (like at the casino), but over the long run they are destined to fail, as they cannot control their emotions.
Whether one decides to be a longer-term, shorter-term, or day-trader, it would be wise to construct some type of plan, and rules, to abide by. By creating your own “luck” with preparation, you will find a higher rate of success, and be able to sleep at night.
***As always, this information is not intended to be financial advice, or any specific buy or sell recommendation, but rather a guide to assist the reader in some further understanding of the financial markets.
