Categorized | Domaining Tips

Good Investors Generally Avoid Making Predictions

Posted on 11 December 2013 by Andrei

This goes for domainers as well as pretty much all investors.

I noticed something interesting and would like to invite all of you to try it as opposed to simply taking my word for it: find a random stock trading forum, a forum about precious metals or about pretty much anything you can invest in.

You’ll notice that beginners are generally extremely excited about making predictions… lots and lots of predictions.

“Stock ABCDE will reach $x within y days”

“Gold will reach $x within y days”

… and so on.

Read their arguments and you’ll see how convinced they are, it’s as if they have it all figured out.

Then you read some of their past predictions and realize that they’re all over the place. So all over the place, in fact, that if you were to ask a small child to randomly pick a price between $a and $b, the child may just outperform most “savvy” investors.

The same principle is valid for all sorts of investment gurus.

Whenever someone tells me about an “investment genius” and links to a video about one of his predictions, the first thing I do (in a lot of cases before even watching that video) is try to find videos of that person’s past predictions.

That way, at least I know who I’m dealing with.

Well, you guessed it, the previously mentioned child would probably outperform most gurus as well.

As an investor, you’re not a magician with a crystal ball.

You’re simply a person who tries to make educated financial decisions in order to allocate capital efficiently.

You can’t see the future because again, you’re not a magician with a crystal ball.

The only thing you can do is asses the risk vs. reward ratio of each investment you’re thinking about making.

The harder you work and the better you become at it, the more likely you are to make good decisions but make no mistake, nobody “knows” what will happen and that’s exactly why good investors generally avoid making predictions.

A good investor might tell you that he thinks the ABCDE stock is overpriced or underpriced. He might tell you that in his opinion, the risk vs. reward ratio justifies being a buyer or a seller at that point but will avoid saying things like “trust me, it will reach $x within y days” because… well, simply because he doesn’t know, you don’t know and neither does anyone else.

As a domainer, you have to understand these things because being realistic will ultimately help you make more money.

It might not be as exciting as thinking you can see the future through your crystal ball but that’s just the way it is :)

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3 Comments For This Post

  1. Domain Shane Says:

    I am going to have to disagree. Any time you are buying a domain you are making a bet or prediction that you think that particular extension or keyword is going to increase in value. Not predicting means not doing anything

  2. Andrei Says:

    @Shane: that’s exactly the point I’m trying to get across, that good investors always try to figure out whether or not an asset is underpriced or overpriced (or as you said, whether or not it’s likely to go up in value) but will avoid making specific predictions such as “the price will reach $x within y days” because nobody has a crystal ball… or at least one that works properly :)

    Let’s refer to domains again.

    A good investor might tell you something along the lines of:

    “Look, I think this LLL dot com is underpriced and at this price, being a buyer makes sense”

    … as opposed to telling you something along the lines of:

    “trust me, the price will reach $12,345 within 3 months and two weeks”

    That’s the distinction I tried to make through this post.

  3. Excitemental Says:

    Everyone tries to work out what they think the value of a domain name will be in a certain amount of time, perhaps not as specific as x amount in x days but that is what investment is predicting that the domain, stock etc that you are buying will increase in value. imo

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