What is the “one thing” that great investors never do? It’s a great question. Over the last 30-years, I have endeavored to learn from my mistakes. And, trust me, I paid plenty of “stupid tax” along the way. However, it is only from making mistakes that we learn to be better investors, advisors, or portfolio managers.
The following is a listing of investing tips, axioms, and market wisdom from some of the great investors of our time. Importantly, compare these investing rules to your advisors’ methodologies or what you are told daily by the media.
Can you spot the one thing “great investors” never do?
12 Market Wisdoms From Gerald Loeb
1. The most important single factor in shaping markets is public psychology.
2. To make money, you either have to be ahead of the crowd, or sure they are following.
3. Accepting losses is the single most vital action to ensure the safety of capital.
4. The one thing separating investors who continually procure a net profit is not a question of superior stock selection or timing. Instead, they know how to capitalize on the success and curtail failures.
5. The most important indications are made in the early stages of a broad market move. Nine times out of ten, the leaders of an advance make new highs ahead of the averages.
6. “A picture is worth a thousand words.” One might paraphrase this as “a profit is worth more than endless alibis.” Prices and trends are the best and simplest “indicators.”
7. Profits get made safely when the opportunity is available. Not because they are desired or needed.
8. Willingness and the ability to hold funds uninvested while awaiting real opportunities is the one thing leading to success in the battle for investment survival.
9. A contributing factor other than inflation or deflation is the psychological. If people think prices will advance or decline, such contributes to price movement. The momentum of the trend perpetuates it.
10. Most people try to obtain a certain percentage return. Inevitably, they secure a negative yield when properly calculated over years. Speculators take less risk and have a better chance of success.
11. I feel all relevant factors get registered in the market’s behavior. In addition, the market’s action should allow reasonably accurate forecasting of news in advance of its occurrence.
12. You don’t need analysts in a bull market, and you don’t want them in a bear market
Jesse Livermore’s Trading Rules Written in 1940
1. Nothing new ever occurs in the business of speculating or investing.
2. Money cannot consistently get made trading every day or week during the year.
3. Don’t trust your own opinion. Instead, wait until the action of the market itself confirms your view.
4. Markets are never wrong – opinions often are.
5. The real money made in speculating has been in trades showing a profit from the start.
6. As long as a stock and the market are acting correctly, do not hurry to take profits.
7. Never permit speculative ventures to run into investments.
8. The money lost by speculation is small compared with the gigantic sums lost by investors who let investments ride.
9. Never buy a stock because it has a significant decline from its high.
10. Never sell a stock because it seems high-priced.
11. I become a buyer as soon as a stock makes a new high after a normal correction.
12. Never average losses.
13. The human side of every person is the greatest enemy of the average investor.
14. Wishful thinking must be banished.
15. Big movements take time to develop.
16. It is not good to be too curious about the reasons behind price movements.
17. It is easier to watch a few than many.
18. If you cannot make money out of the leading issues, you won’t profit from the market.
19. The leaders of today may not be the leaders in two years.
20. Do not become completely bearish or bullish on the market because one stock reversed its course from the general trend.
21. Few people ever make money on tips. Beware of inside information. If there were easy money lying around, no one would be forcing it into your pocket.
21 Rules Of Paul Tudor Jones
1. When you are trading size, you have to get out when the market lets you out, not when you want to get out.
2. Never play macho with the market and don’t over trade.
3. If I have positions going against me, I get out; if they are going for me, I keep them.
4. I will keep cutting my position size down as I have losing trades.
5. Don’t ever average losers.
6. Decrease your trading volume when you are trading poorly; increase your volume when you are trading well.
7. Never trade in situations you don’t have control over.
8. If you have a losing position that is making you uncomfortable, get out. You can always get back in.
9. Don’t be too concerned about where you got into a position.
10. The most important rule of trading is to play great defense, not offense.
11. Don’t be a hero. Don’t have an ego.
12. I consider myself a premier market opportunist.
13. I believe the very best money gets made at market turns.
14. Everything gets destroyed a hundred times faster than it gets built up.
15. Markets move fast when they move.
16. When I trade, I don’t just use a price stop; I also use a time stop.
17. Don’t focus on making money; focus on protecting what you have.
18. You always want to be with whatever the predominant trend is.
19. My metric for everything I look at is the 200-day moving average of closing prices.
20. At the end of the day, your job is to buy what goes up and sell what goes down. So, who gives a damn about PEs?
21. I look for opportunities with tremendously skewed reward-risk opportunities.
Bernard Baruch’s 10 Investing Rules
1. Don’t speculate unless you can make it a full-time job.
2. Beware of barbers, beauticians, waiters — of anyone — bringing gifts of “inside” information or “tips.”
3. Before you buy a security, find out everything you can about the company, its management and competitors, its earnings, and possibilities for growth.
4. Don’t try to buy at the bottom and sell at the top. Such can’t be done, except by liars.
5. Learn how to take your losses quickly and cleanly. Don’t expect to be right all the time. But, if you have made a mistake, cut your losses as soon as possible.
6. Don’t buy too many different securities. Better to watch only a few investments.
7. Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.
8. Study your tax position to know when you can sell to the most significant advantage.
9. Always keep a good part of your capital in a cash reserve. Never invest all your funds.
10. Don’t try to be a jack of all investments. Stick to the field you know best.
James P. Arthur Huprich’s Market Truisms And Axioms
1-10
1. Commandment #1: “Thou Shall Not Trade Against the Trend.”
2. Portfolios heavy with underperforming stocks rarely outperform the stock market!
3. There is nothing new on Wall Street. There can’t be because speculation is as old as the hills. Today, whatever happens in the stock market has happened before and will happen again, primarily due to human nature.
4. Sell when you can, not when you have to.
5. Bulls make money, bears make money, and “hogs” get slaughtered.
6. We can’t control the stock market. The very best we can do is understand what the stock market is trying to tell us.
7. Understanding mass psychology is just as crucial as understanding fundamentals and economics.
8. Learn to take losses quickly, don’t expect to be right all the time, and learn from your mistakes.
9. I don’t think you can consistently buy at the bottom or sell at the top. Such rarely gets done consistently.
10. When trading, remain objective. Don’t have a preconceived idea or prejudice. Said another way, “the great names in Trading all have the same trait: An ability to shift on a dime when the shifting time comes.”
11-20
11. Any dead fish can go with the flow. Yet, it takes a strong fish to swim against the flow. In other words, what seems “hard” at the time is usually, over time, right.
12. Even the best-looking chart can fall apart for no apparent reason. Thus, never fall in love with a position but instead remain vigilant in managing risk and expectations. Use volume as a confirming guidepost.
13. When trading, if a stock doesn’t perform as expected within a short period, either close it out or tighten your stop-loss point.
14. As long as a stock is acting right and the market is “in-gear,” don’t be in a hurry to take profits on the whole position. Scale-out instead.
15. Never let a profitable trade turn into a loss, and never let an initial trading position turn into a long-term one because it is at a loss.
16. Don’t buy a stock simply because it has significantly declined from its high and is now a “better value;” wait for the market to recognize “value” first.
17. Don’t average trading losses, meaning don’t put “good” money after “bad.” Adding to a losing position will lead to ruin. Again, ask the Nobel Laureates of Long-Term Capital Management.
18. Human emotion is a big enemy of the average investor and trader. Be patient and unemotional. There are periods where traders don’t need to trade.
19. Wishful thinking can be detrimental to your financial wealth.
20. Don’t make an investment or trading decision based on tips. Tips are something you leave for good service.
21-27
21. Where there is smoke, there is fire, or there is never just one cockroach: In other words, the bad news is usually not a one-time event.
22. Realize that a loss in the stock market is part of the investment process. The key is not letting it turn into a big one, as this could devastate a portfolio.
23. Said another way, “It’s not the ones that you sell that keep going up that matter. It’s the one that you don’t sell that keeps going down that does.”
24. Your odds of success improve when you buy stocks when the technical pattern confirms the fundamental opinion.
25. As many participants have come to realize from 1999 to 2013, during which the S&P 500 has made no upside progress, you can lose money even in the “best companies” if your timing is wrong. Yet, if the technical pattern dictates, you can make money on a short-term basis, even in stocks that have a “mixed” fundamental opinion.
26. To the best of your ability, try to keep your priorities in line. Don’t let the “greed factor” Wall Street generates outweigh other essential areas of your life. Balance the physical, mental, spiritual, relational, and financial needs of life.
27. Technical analysis is a windsock, not a crystal ball. It is a skill that improves with experience and study. Always be a student; there is always someone more intelligent than you!
James Montier’s 7 Immutable Laws Of Investing
1. Always insist on a margin of safety
2. This time is never different
3. Be patient and wait for the fat pitch
4. Be contrarian
5. Risk is the permanent loss of capital, never a number
6. Be leery of leverage
7. Never invest in something you don’t understand
But, Did You Spot The “One Thing?”
Every day the media continues to push the narrative of passive investing, indexing, and “buy and hold.” Yet while these methods are good for Wall Street, as it keeps your money invested at all times for a fee, it is not necessarily good for your future investment outcomes.
Did you find the “one thing” that great investors never do?
Not one of the investing greats has “buy and hold” as a rule.
So, the next time someone tells you the “only way to invest” is to buy an index and hold it, think about the one thing no great investor does.
There are numerous investors and portfolio managers that get revered for their knowledge and success. However, while we idolize these individuals for their respective “genius,” we can also save ourselves time and money by learning from their wisdom and experiences.
Their wisdom was NOT inherited but got birthed from years of mistakes, miscalculations, and trial-and-error. But, most importantly, what separates these individuals is their ability to learn, adapt, and capitalize on those mistakes in the future.
Experience is an expensive commodity to acquire, which is why it is always cheaper to learn from the mistakes of others.
You should notice the many similarities in the wisdom of each. There are only a few fundamental “truths” of investing that all great investors learn over time.
I hope you will find the lessons as beneficial as I have over the years, incorporate them.
Most importantly, find the “one thing” that works for you.
