One key point to learn about stocks: it’s important to be honest with yourself and stay clear of investing situations that will expose you to excessive risk

To succeed as a Successful Investor, you have to learn everything you can about stocks—and take a broad view in making investment decisions. Technical analysis and other narrow views do sometimes seem to “work” for lengthy periods, of course. But they only work for a minority of the time, and they never work consistently. Instead, they run hot and cold. As with all random events, their successes occur in bunches.

These bunches of successes come in random lengths, with random beginning and end points. It’s easy to see how this applies with technical analysis, which has an arcane air about it. But the same principle works for something as straightforward and commonsensical as, say, value investing and growth investing (see below).

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One key point you need to learn about stocks for investing success: Be honest with yourself, and never rely on luck like some poker players do

One key difference between suckers and better players is that the former generally have an unrealistic or at least inflated opinion of their own poker-playing ability. If they think about it at all, most view themselves as “above-average” poker players, in the same way that many people think of themselves as above-average drivers or joke-tellers. When suckers lose, they attribute it to a run of bad cards or a handful of poor playing decisions.

In contrast, better players are brutally honest with themselves. They understand that luck evens out over long periods. They know they will always lose in the long run to players who have more native talent for the game and who spend more time playing it and studying it. Consequently, they try to find poker games in which they are among the better players. They understand that this is what makes it possible for them to win.

This basic idea also applies to certain areas of investing, where the average investor just can’t win. These include stock options, short-term trading, new stock issues, and concept stocks.

As a part-time amateur, it is virtually impossible to become so good in these areas that you overcome the competition you face from full-time professionals. You can get lucky from time to time, just as in poker. But you are virtually certain to lose money in the long run.

This same kind of luck is why some aggressive investors like to get into fast-growing stocks at what they describe as “the ground floor.” They think the best way to profit in stocks is to buy them when they are just barely starting out on a growth phase that can last for years if not decades. Ideally, they want to buy the future top performers when they are still near or close to the penny stock range and have yet to be discovered by the broad mass of investors.

These investors rarely find what they’re looking for. That’s because there’s a large random element in investing, especially at the ground floor. Many promising junior stocks fail to thrive as businesses for one or more of any number of reasons. To borrow from the opening lines of Tolstoy’s Anna Karenina, successful stocks tend to have a lot in common, whereas unsuccessful stocks tend to suffer from their own unique sets of risks and faults.

When investors lose money in these high-risk areas, they think up at all sorts of reasons why—they got in at the wrong time, listened to the wrong people, or made some other error that in retrospect seems obvious. They hate to accept the real reason: they were in the wrong game. They got into a poker game where they were doomed from the start.

Bonus Tip: Learn about stocks by looking at the pros and cons of both value and growth investing

Academic studies suggest that on average, value investing produces better results than growth investing. But these studies mostly look back on what would have happened in a particular historical period, if you followed a particular set of rules. Most 30distinguish between growth and value investing by looking at average p/e’s (ratios of per-share price to per-share earnings). They assume high p/e’s are a marker for growth stocks and low p/e’s for value stocks. As any serious value or growth investor can tell you, it’s more complicated than that.

If you balance and diversify your Successful Investor portfolio as we recommend, it should include both growth and value selections. In both areas, you should avoid extremes.

Most Successful Investors will hold some growth stocks and some value stocks at any given time, depending on where they discover the best opportunities.

Together, growth stocks and value stocks can form a winning combination. A growth stock can be a top performer while the company is growing. However, a single quarter of bad earnings can send it into a significant, though often temporary, slide. Value stocks can test your patience by moving sluggishly for months, if not years. But they can make up for it by rising sharply when investors discover their true value.

What sources do you consider when you try to learn about stocks and investing?

What hard lessons have you learned about stock investing?