The world of investing is fascinating. The idea that an amateur can achieve the same results as Buffett—is it skill or luck? Distinguishing between the two is surprisingly …

Hello! I am TAKA Chan, an individual investor and former hotelier.

The world of investing is truly fascinating.

For example, suppose world-renowned investor Warren Buffett buys one share of a certain stock.

And what would happen if an amateur who just started investing happened to buy the same stock at the same time and at the same price?

The answer is simple.

The subsequent stock price fluctuation rate will be the same for both Buffett and the amateur.

Of course, this assumes that conditions such as dividends, fees, and taxes are the same.

If Buffett makes a 20% profit, the amateur also makes a 20% profit.
If it drops, it drops.

Knowledge and experience have nothing to do with it.

In an extreme case, if a seasoned professional with over 50 years of investment experience and a beginner who opened a brokerage account yesterday buy stocks under the same conditions, the return over that holding period will be the same.

So, is the ability of both the same?

Naturally, that is not the case.

■ The terror of investing is that you can win by pure luck

As Nassim Nicholas Taleb’s book Fooled by Randomness that I introduced recently also makes you think, in the world of investing, just because the result was good does not necessarily mean the decision was correct.

A stock bought by chance might increase tenfold.

On the other hand, a professional who has thoroughly analyzed a company might suffer a loss.

In other words, you cannot distinguish between skill and luck based solely on short-term investment performance.

I think this is what makes investing so incredibly interesting, and at the same time, so terrifying.

■ The real difference appears after winning

Suppose a beginner buys the same stock as Buffett and earns the same profit.

However, what about the next time?

Furthermore, what about the time after that?

When a market crash occurs, will you be able to make the same judgment?

You might mistake accidental success for skill and take on unnecessarily large risks.

Winning once and surviving as a winner over the long term are completely different things.

Buffett’s strength lies not in making a huge profit from a single investment, but in having accumulated judgments over many years.

■ That is why I want to doubt even my own success

When you make a profit in investing, anyone would want to believe their judgment was correct.

However, was it really skill?

It might simply have been riding a bull market.

It might just be that you were lucky with the timing of your purchase.

Conversely, just because you incurred a loss does not necessarily mean your judgment was wrong.

Having a long investment history or having made large profits in the past does not, by itself, guarantee future success.

Finally, including my personal opinion

I believe that what is important in investing is not overestimating your own abilities.

Both skilled investors and beginners participate in the market, and if they happen to make the same investment, they can earn the same return.

However, whether you can continue to do that for decades is a different matter.

That is precisely why I value the approach of placing long-term, diversified, low-cost ETFs at the core of my investments.

This is because I can participate in the growth of the entire market without overestimating my own stock-picking ability. Of course, that does not mean I can avoid losses.

In the world of investing, those who win were not necessarily right. And those who lost were not necessarily wrong.

I think we must not forget this.

Ultimately, perhaps the scariest thing in investing is not winning by luck, but believing that winning by luck is actually your own skill.

I write notes for investors.
Except for some analytical articles and earnings-related reports, they are published almost entirely for free.