Readers of the Freakonomics blog recently got some questions answered by the dynamic duo behind the Discovery Channel's hit series MythBusters. "We like to get things wrong," Jamie Hyneman said, "because if we just went through a test and everything worked well, what did we learn? Not near as much as we do when we [mess up]."
As it happens, you can become a better investor by doing the same thing. By learning from your inevitable failures, you'll ensure that your successes are that much sweeter -- and more profitable. And our newsletter services are our own labs, where you don't just get stock picks, but you also get the reasoning behind the picks. That helps give you the tools to learn and come up with your own investment choices.
Keepin' it real
If you like to let it all hang out, high-risk stocks with big potential rewards can juice up your returns. Even if you make lots of mistakes, a single big winner can still leave you with an overall profit. A single three-bagger like Motley Fool Hidden Gems superstar Nuance Communications (Nasdaq: NUAN ) or Rule Breakers pick Vertex Pharmaceuticals (Nasdaq: VRTX ) wipes out the downside of five 40% losers like TASER (Nasdaq: TASR ) , or six 30% drops like Select Comfort (Nasdaq: SCSS ) or Stanley Furniture (Nasdaq: STLY ) .
Finding one winner out of six or seven isn't too tough a target to hit, and every success beyond that meek target is money in the bank. But even the misses aren't disasters -- they're learning opportunities. You'll walk away from every failure with a richer understanding of how the market works, and you'll be better prepared to avoid making the same mistake again.
One important lesson is that when an investment turns south, that doesn't mean it'll be a loser forever. For example, robotic-surgery specialist Intuitive Surgical (Nasdaq: ISRG ) has been a seven-bagger for early birds in the rule-breaking flock. But to get there, investors had to sit out several steep drops along the way -- including a 44% slide early last year -- without panic-selling.
Investors who had done their homework knew that the upgrade cycle that kicked off that fire sale was a good thing for Intuitive Surgical in the long run. David Gardner told his subscribers as much when he recommended the stock a third time, in the middle of that slide. The share price has tripled since that re-re-recommendation.
Crawl before you walk
Putting your money into the learning game is one surefire incentive for absorbing the lessons learned. But you can learn valuable lessons by playing the market like a game, too. That's where our Motley Fool CAPS service comes in.
CAPS is an exercise in theory and community, a place where you can share your insights about any company at all and pick up the pearls of wisdom that others have left for you to find. You play for points rather than cash. While we occasionally run contests where you can win money for being a bigger know-it-all than everybody else, the real payoff in CAPS is in the investing lessons learned.
With CAPS, you learn in two different ways. First, you handle your own imaginary portfolio of "outperform" and "underperform" calls. Our systems track your picks for you, so you know exactly when you were right and wrong, and by how much. You can mark some picks as sure bets and see how you do when you feel pretty darn sure about the call, and there's a watch list for the ideas you haven't yet thought about deeply enough to risk your score on their performance. You're free to experiment in any way you want, and you risk nothing more than your CAPS ranking.
Keep your eyes open
Second, you have free, unfettered access to how everybody else is doing -- from Newbie Nate and Tentative Tom to Fools such as Tom Gardner or professional analysts such as Credit Suisse.
So you can see that Tom has liked Google (Nasdaq: GOOG ) since September 2006, because "the only thing stopping Google will be the Justice Department, and [he doesn't] expect hints of that issue to surface for a few years." We began tracking Credit Suisse a couple of months later, and both participants' CAPS scores -- Tom's and Credit Suisse's -- have soared on the backs of picks like this one.
You can trawl the entire community for brilliant comments and surprising picks, or you can just find a few favorite players and watch their every move. If you're not coming away from a CAPS session a smarter investor, you just weren't trying to learn.
Bust or confirm your own preconceived notions of good investing. Whether you want to do it the hard but profitable way, or in a safe, chatty sandbox, the Fool has the tools to help you. Sign up for a bunch of free 30-day newsletter trials right now, or start a totally free CAPS account. Or, by all means, do both and create your own hybrid experience. Your nest egg will be glad you did.