Series – How To Get Lucky In Life And The Stock Market: Part 1
Increasing Your Luck – Part Two | Increasing Your Luck – Part Three | Increasing Your Luck – Part Four | Increasing Your Luck – Part Five
There is one underlying current that many people forget about when investing in the Stock Market, and that is the influence of Lady Luck.
We’ve all heard about the guy who made his million from one lucky stock in the market. We’ve all heard about the person who got the one lucky idea, or was in the “right place at the right time”. Well the good news is, this thing called luck can be learned, and it’s simpler than you might think.
“The Lucky” All Have The Same Traits In Common
That’s right – without fail Lucky people in life all have certain traits in common – in fact these lucky people were studied over a period over more than 30 years from the mid to late 1900s by a man named Max Gunther.Â
He found that there are 5 distinct characteristics that the average person can work on if they want to become “lucky” – and as I was reading these characteristics I was amazed at how well they fit into Stock Market investing as well.
Everybody wants to get lucky. This series will go through each of Max Gunther’s “Luck Factors”, and how to apply them in the Stock Market to help increase your Stock Market luck.
Luck Factor 1: The “Ratchet Effect”
The Ratchet Effect is one of the simplest traits that the lucky all have in common. Obviously this is a metaphor – a “ratchet” being a device that preserves gains - it allows a wheel to turn forwards, but prevents it from slipping backwards.
It means running with an idea, a job, a relationship, a stock; but if the situation becomes bad (or worse) to cut your ties and move on to other opportunities. “Unlucky” people in life typically stick with their job, relationship or stock, even when they know it is doing their life or bank account harm. They can’t bring themselves to leave, and then, ironically, they complain about how crappy their life is!
But this idea can have massive, positive implications on your life and investing. You might use the ratchet effect to leave a job after your prospects for advancement were ruined by a corporate re-structure. You might use it to leave a relationship that, deep down, you know has no chance of improving or is actually doing you harm.
And you might already guess how this applies to the stock market. Very simply, it means buying a stock, letting the gains run, but if the stock turns against you to implement the “ratchet effect”. Sell. Don’t get cosy with your stock, don’t fall in love with it. Have yourself certain rules that if met, will get you out and implement “The Ratchet Effect”.
Every single Stock Market Great has used the ratchet effect in their investing. Every. Single. One.
Why The “Unlucky” Don’t Use The “Ratchet Effect”
There are two reasons Max Gunther found as to why unlucky people never use the ratchet effect.
1:Â Â It’s Too Hard To Say “I Was Wrong”.
This is why you’ll find I have absolutely no ego in the stock market (and I try to have no ego in life as well, but hey, we’re only human!). If something goes wrong or I make a mistake, I admit it – not only to myself, but on this public forum called ASX Market Watch too. For the world to see.
Unlucky people hold on to their ideas and prejudices like they were precious items. They defend their ideas with vigour. They sulk if the world doesn’t agree. And that, my friends, is why they will always be unlucky.
2: It’s Too Hard To Abandon An Investment
Abandoning an investment doesn’t just have to mean a stock – it could mean an investment of time in a relationship, an investment of time or education in a failing career, or of course, your investment of figuring out which stock to buy.
This is a very hard obstacle to overcome. Once we’ve put some effort into something, it is very hard for us to abandon it and move on. But here’s the deal – Lucky people WILL move on. They WILL abandon an investment of their time, money, or other resources for view of something better. If they see the situation is not likely to improve, they will move on to other opportunities.
Avoiding A “Double Loss”
The other reason this Luck Factor works so well, is that it avoids a “Double Loss”. For instance, if we are stuck in a losing stock, job, or relationship, then not only are we losing there, but we are losing out on the missed opportunities we could have if we were in a better stock, job or relationship.
Avoiding the Double Loss can be a blessing to your life.
More to Come
Can you see any ways that you can or should be using the ratchet effect in your own life or investing? If so, now would be a very good time to sit and do some serious thinking about what to do.
There are four more Luck Factors you can implement to increase your luck in trading and in life, and I’ll bring them to you over the next few weeks in this series. Until then, happy trending!
Dave McLachlan
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January 16, 2011
Tags: get lucky in the stock market, how to get lucky, increase my luck, Luck Factor, lucky tip, Max Gunther, stock market investment Posted in: Articles On Building Wealth
2 Responses
Really great post Dave, the ratchet is a fascinating concept.
Thanks Jared – always good to have you here!
- Dave
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