After last week’s Rules frenzy, Cassandra Does Tokyo sent this in. Enjoy:

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Trolling the blogosphere, it seems to be the season for sharing one’s so-called Golden Rules of Investing. So here goes…

 

Cassandra’s 25-3/4 (or so) Tungsten-Filled Golden Rules

#25-3/4. Do as I do – not as I say – but do it without delay! (NB: 13F-HR’s are too late!)

#25-1/2. The trend is your friend….errrr….ummm…..except when its not.

#25-1/4. Whatever kind of metaphorical market animal you are (bull, coq, chicken, weasel, whatever), always remember that Pigs Get Slaughtered.

#25. Buy “The Best of Breed” companies…..unless they are priced at levels preceding the moment when Pigs Get Slaughtered, or when the trend is not your friend, or I am saying the opposite of what I am doing.

#24. NEVER short “Best of Breed” companies…except when Pigs Are Getting Systematically Slaughtered in other “Best of Breed” companies (but don’t get piggy puking out the pigs).

#23. Cut your losses short and let your winners ride – but not when pigs are getting slaughtered

#22. No one ever made a dime by panicking … unless apparently you’re following the previous rule #23 which says you should cut your losses short and let your winners ride.

#21. NEVER double-down (except when you have material non-public information and deep pockets) or if you’re Ed Thorp, or if you’re playing at The Martingale Room.

#20. “Systems” always stop working (Even if they DID actually work at one point). So forget about asking about their “system”: what you really want to know about is their Plans B&C for when it DOES stop working (and why they’re not using them NOW).

#19. Diversify to control risk – except if you are Eddie Lampert

#18. Don’t own too many names – unless you’re Ed Thorp or diversifying to control risk per the above rule

#17. Invest in what you know – unless you don’t know a whole lot about those things.

#16. Buy when others are (almost finished being) fearful.

#15. Buy when there is blood in the streets – but only after it has dried a little bit.

#14. But NEVER buy when the blood in the street is your own. (See rule #23 above)

#13. Never catch a falling knife (unless you know why it’s falling and/or approximately when it’s likely to stop). Catching a rather dull falling knife, however, is OK. (NB: IF you ignore this rule and try to catch the falling knife, and discover it is hazardous, and the street becomes stained with your blood, see rule #23 above).

#12. Leverage is poison! (unless you’re doing risk-parity and then it’s sorta kinda seems theoretically OK, but then again, maybe not just when yields are near zero and everyone else is doing risk-parity or has risk-off asset allocations and…)

#11. Cranking up risk in order to target return when vol is low is like smoking a cigarette out of your butt-hole – it’s just stupid.

#10-1/2. A great coder is worth at least six fraternity brothers.

#10. NEVER allocate money to anyone who feels the need to sum their aggregate number of years experience to some impressively large number.

#9. NEVER invest with anyone with an improbably-inflated CV. If he’s embellished his Starbucks-fetching experience while an intern into something rather more grandiose – imagine what he (and it will be an egotistical ‘He’) is capable of fabricating in regards to his investment strategy and performance!

#8. NEVER invest with an investment manager who buys and then increases positions in less-liquid securities at higher and higher prices (unless those prices are likely to be demonstratively requited by per share growth metrics)

#7. Be entirely skeptical of an investment manager who touts his self-professed superior research skills, proprietary channel checking methods, or interns sent to dumpster-dive to gain an edge. This is almost certainly first-class balderdash.

#6. If your broker says you’re his first call (and you believe him) you’re an idiot.
Always assume you are the LAST one to receive a “tip” or sell-side research. Prop Desks, friends&family of potentially anyone in the research publishing & distribution chain, SAC, MW all will have had the chance to act upon it before you.

#5-1/2. Oh and I forgot one which is the keystone to resolving the logic flaws at the root of the conflicting rules: “One man’s momentum is another man’s reversion….

#5. If you pay an upfront load for the ‘privilege’ of investing in a fund, you’re an idiot.

#4. If you invest in a hedge fund with anything less than annual incentive-fee crystallization, you’re an idiot.

#3. The moment your Advisor, Letter-Writer, Investment Guru mentions “Hyperinflation” or “Government Conspiracy” – run away in the other direction as fast as you can.

#2-1/2. To catch a gopher, you’ve got to think like a gopher.

#2. NEVER subsidize losers with winners – unless you’re diversifying to control risk – where rule#23 will tell you to sell your losers and let your winners ride – unless the losers are “what you know” and therefore you SHOULD be investing in it – doubly-so if you have material non-public information, and especially if there is Blood In The Streets – unless of course it’s your own blood, in which case you should return to #23 and sell your losers – at least until tomorrow when you wake up and see that there is blood in the Street and you remember to be greedy when the others are fearful…

#1. Never listen to other peoples Golden Rules – particularly those filled with Tungsten.

Category: Humor, Rules

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

10 Responses to “(Not so) Golden Rules About Investing (& Not Investing)”

  1. RW says:

    Right on Cassandra! I’d start following those rules today but I’m feeling a little whiplash …or is that whipsawed …ah screw it, I need a beer.

  2. cmor says:

    I actually like #15… “Buy when there is blood in the streets – but only after it has dried a little bit.”

    That advice served well in late October 2008. By the next March it had dried enough.

    I think what happened there is that active investors bailed immediately, but passive investors didn’t realize their losses until they got year-end statements in February 2009, and when they saw how much they had lost they completed the market’s downward leg by cutting back on stocks four months after prices cratered. Hence, they caused the “blood to dry” making a move upward possible.

  3. VennData says:

    Buy a market dip after a Jack Welch tweet.

  4. Roanman says:

    Pigs get fat. it’s the hogs that get slaughtered.

  5. farcry360 says:

    this is hilarious
    this should be added up there too
    “trading to profitability is 10% methodology, and 90% psychology, but good luck finding that 10% methodology”

    something like that :)

  6. algotr8der says:

    What market dip? The S&P basically closed unch.

    What you can also do is buy the market when every CNBC pundit comes on tv and says “The market moves in the direction to inflict the maximum pain and thats in the direction of those on the sidelines”. Oh really? The equity markets moved from the March 2009 lows to nearly all time highs by magic? It moved because people entered and invested in the market. So the idea that there are so many people sitting on the sidelines is a confirmation bias.

    The “lots of cash” sitting on the sidelines is a myth the bull pundits keep referring back to over and over again. Where is this cash that is just sitting there waiting to enter and drive the markets higher? Sure there is money in fixed income but that money isn’t leaving anytime soon. Babyboomers who have witnessed their retirement accounts nearly vanish will not re-enter. But I guess the pundits on CNBC will invest based on “hope”.

    This is a mature bull cycle with historically low cash levels sitting on the side lines and to deny that is to set up for a rug pull.

  7. [...] (Not so) Golden Rules About Investing (& Not Investing) Good reminder that the trouble with rules is that there are always exceptions, and it’s never certain whether this time is one of them. [...]

  8. poppysmic says:

    #10

    I cannot stand when 40 yr olds say they have 25 yrs of experience, or 20 or even 15 yrs- Like hell you knew what you were doing prior to 30.

    Even those firms that were founded in 1835, with over 200 yrs of experience. Because the time a single person has 40yrs experience, 35 are irrelevant.

    Most people do 1 thing over and over- maybe 1 yr doing the same thing over and over for 10 yrs.

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    BR: That was what the emailer wrote — in part II, I wrote “These rules come from 20 years of experience – or 20 years of learning from my own mistakes.”

  9. ToNYC says:

    “Most people do 1 thing over and over- maybe 1 yr doing the same thing over and over for 10 yrs.”
    The Specialist for BRK.A just retired Thursday having gone to 20 Broad for 63 years. I’m sure he hated it when Schrafft’s gave up the concession at the NYSE lunchroom, but that was only two score years ago.

  10. leveut says:

    Re Poppysmic: Is it 20 years of experience, or 1year of experience 20 times.

    Re Cassandra’s Rules: Cassandra was cursed, always to be correct, never to be believed.