Believe it or not, stock picking is an imprecise science.
Even professional investors don't see all their ASX shares give back positive returns.
But then they don't expect them to, either.
"You don't even have to get 50% of your calls right," Cyan Investment Management portfolio manager Dean Fergie told The Motley Fool back in 2021.
"You just got to make sure that the ones you get wrong, you don't double down on and keep throwing good money after bad. And the ones that go well, you let those profits run.
Remember: asymmetrical outcome
So how does one end up with a winning portfolio when only 6 out of 10 stocks are in the black?
Fergie explained it can work because winners have unlimited potential, whereas losers can only lose you a capped amount of money.
"I say the thing with long-only investing is that it's an asymmetrical outcome," he said.
"You can't lose more than 100%, but you can make much more than 100%."
Let's say, for example, you have ten ASX shares in your portfolio. Like any good long-term investor, you held onto them for five years and this is the result:
| Stock | Return after 5 years |
| Stock A | (50%) |
| Stock B | (50%) |
| Stock C | (75%) |
| Stock D | (95%) |
| Stock E | 10% |
| Stock F | 50% |
| Stock G | 75% |
| Stock H | 100% |
| Stock I | 200% |
| Stock J | 300% |
| Portfolio | 46.5% |
In the above portfolio, four of the 10 stocks provided negative returns. One of them has even lost a terrible 75% of its valuation, while another is pretty much down to zero.
But the six stocks that are in the black have carried the basket, to provide a respectable overall return of 46.5%.
Sage Capital portfolio manager Sean Fenton is another expert who confessed to The Motley Fool in 2021 that perfection is not what he aims for.
"To be perfectly honest, we target getting 60% of our decisions correct."
He added that "hindsight bias" causes people to scrub all the losers from their memories. After all, they're not the ones you are bragging about at barbecues.
"People also have very selective memories in terms of remembering their wins and forgetting their losses," said Fenton.
"You always think that knowing things is easier than it actually was."
If you don't put in the hard work and actually calculate how all your investments worked out, amateur investors can be lulled into a false sense of confidence.
"But we do do that and if we can get 60% of our investment decisions right, it means we're absolutely knocking it out of the park."
