Day 1 · Module 1
Why tips fail
Most investors who lose money don’t lack information. They lack a process. This module shows why tips fail, and the two habits that replace them: comparing yourself with the index, and judging decisions by quality rather than outcome.
In this module
- Why a tip gives you an entry but no exit
- Bogle’s test: would the index have done better?
- Duke’s idea of ‘resulting’, and why a lucky win is dangerous
- The Brewstone story: gut, rules, or ignore the tip
What’s wrong with a tip
A tip tells you what to buy. It rarely tells you why, how much to buy, what would prove it wrong, or when to sell. So when the price falls, you have no plan, only a feeling. That’s where most losses grow.
Habit 1: Bogle’s index test
John Bogle, founder of Vanguard, showed that most investors, after costs, do worse than a low-cost index fund over time. Warren Buffett has written that most people are better served by an index fund too. So every decision in this course is compared with simply holding the index: the FBM KLCI for Bursa stocks, the S&P 500 for US stocks.
Habit 2: Duke’s decision quality
Annie Duke, a former professional poker player, calls it ‘resulting’ when we judge a decision only by how it turned out. A good decision can lose money through bad luck. A bad decision can make money through good luck, and that’s the most dangerous outcome because it teaches bad habits.
| Good outcome | Bad outcome | |
|---|---|---|
| Good decision | Skill, maybe some luck | Bad luck. Keep the process |
| Bad decision | Luck. The most dangerous box | Learn the lesson |
The Brewstone story
In January, a friend tips Brewstone Coffee at US$80. Three investors, each with RM100,000, respond differently over the year:
| Investor | What they did | Result for the year |
|---|---|---|
| Gut | Bought on the tip, held and hoped | -RM3,993 |
| Rules | Bought with a written trend exit, sold in September at US$69 when the rule triggered | -RM1,264 |
| Ignored the tip | Did nothing | RM0 |
The rules investor still lost money. But the loss was planned, limited and written down before buying. That’s the difference this course teaches.
Explain resulting with my own example
Explain Annie Duke's idea of 'resulting' in plain English. Then ask me for one investing or life decision I made that turned out well or badly. Help me place it in the four boxes: good or bad decision, good or bad outcome. Ask me questions; don't decide for me.
Run the index test on a past tip
I once acted on a tip: [stock, exchange, roughly when I bought, roughly when I sold or 'still holding']. Find the price change over that period and compare it with the FBM KLCI or S&P 500 over the same dates. Show sources and dates. Then ask me: knowing this, what would I do differently?
Tip: If you’ve never acted on a tip, use a stock friends talked about recently.
Educational material applying published investment principles. Not investment advice or a recommendation to buy or sell any security. Verify all data independently.