Posts filed under “Rules”

Paul Tudor Jones: 13 Insights

I love this collection of Paul Tudor Jones insights and rules by way of Ivanhoff Capital:

 

13 Insights From Paul Tudor Jones

1. Markets have consistently experienced “100-year events” every five years. While I spend a significant amount of my time on analytics and collecting fundamental information, at the end of the day, I am a slave to the tape (and proud of it).

2. Younger generation are hampered by the need to understand (and rationalize) why something should go up or down. By the time that it becomes self-evident, the move is over.

3. When I got into the business, there was so little information on fundamentals, and what little information one could get was largely imperfect. We learned just to go with the chart. (Why work when Mr. Market can do it for you?)

4. There are many more deep intellectuals in the business today. That, plus the explosion of information on the Internet, creates an illusion that there is an explanation for everything. Hence, the thinking goes, your primary task is to find that explanation.

As a result of this poor approach, technical analysis is at the bottom of the study list for many of the younger generation, particularly since the skill often requires them to close their eyes and trust price action. The pain of gain is just too overwhelming to bear.

5. There is no training — classroom or otherwise — that can prepare for trading the last third of a move, whether it’s the end of a bull market or the end of a bear market. There’s typically no logic to it; irrationality reigns supreme, and no class can teach what to do during that brief, volatile reign. The only way to learn how to trade during that last, exquisite third of a move is to do it, or, more precisely, live it.

6. Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, whereas the mania runs wild and prices go parabolic.

7. That cotton trade was almost the deal breaker for me. It was at that point that I said, ‘Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?’

8. If I have positions going against me, I get right out; if they are going for me, I keep them… Risk control is the most important thing in trading. If you have a losing position that is making you uncomfortable, the solution is very simple: Get out, because you can always get back in.

9. Losers average down losers

10. The concept of paying one-hundred-and-something times earnings for any company for me is just anathema. Having said that, at the end of the day, your job is to buy what goes up and to sell what goes down so really who gives a damn about PE’s?

11. The normal progression of most traders that I’ve seen is that the older they get something happens. Sometimes they get more successful and therefore they take less risk. That’s something that as a company we literally sit and work with. That’s certainly something that I’ve had to come to grips with in particular over the past 12 to 18 months. You have to actively manage against your natural tendency to become more conservative. You do that because all of a sudden you become successful and don’t want to lose what you have and/or in my case you get married and have children and naturally, consciously or subconsciously, you become more conservative.

12. I look for opportunities with tremendously skewed reward-risk opportunities. Don’t ever let them get into your pocket – that means there’s no reason to leverage substantially. There’s no reason to take substantial amounts of financial risk ever, because you should always be able to find something where you can skew the reward risk relationship so greatly in your favor that you can take a variety of small investments with great reward risk opportunities that should give you minimum draw down pain and maximum upside opportunities.

13. I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms.

 

Great stuff, Ivan !

Category: Apprenticed Investor, Investing, Rules

Bad Habits of Unprofitable Traders

Steve Burns posted a nice list of rules for traders. It is a worthy addition to our prior lists of rules (most recently, here; all previous rules here)   10 Bad Habits of Unprofitable Traders 1. They trade too much. 2. Unprofitable traders tend to be trend fighters, always wanting to try to call tops…Read More

Category: Rules, Trading

Investing/Trading Rules, Aphorisms & Books (Summer 2014)

A few years ago, I started pulling together my favorite Trading Rules & Aphorisms. It turned out to be a popular post, and so we added “Rules” as a new category. Since then, I have taken to updating this sporadically (see this).

We are overdue for an update.  What follows are the smartest and most insightful perspectives from traders, analysts, economists and investors on what to do — and what not to do — when it comes to markets that have been previously published on TBP.

Here is the latest update:

Trading & Investing Rules, Aphorisms & Books

Jeremy Grantham: Investment Lessons Learned Over 47 Years (Mistakes Were Made)

Sir John Templeton 16 Rules For Investment Success

Bernard Baruch: 10 Rules of Investing

10 Lessons from 1987 Market Crash

Livermores Seven Trading Lessons

Bob Farrell’s 10 Rules for Investing

James Montier’s Seven Immutable Laws of Investing

Byron Wien’s 20 Rules of Investing & Life

Richard Rhodes’ 12 Trading Rules

John Murphy’s Ten Laws of Technical Trading

Six Rules of Michael Steinhardt

Warren Buffett Favorite Investing Quotes

Nassim Taleb’s 5 Rules of Volatility

Morgan Housel’s 9 Financial Rules

David Merkel: The Eight Rules of My Investing

Art Huprich’s Market Truisms and Axioms

DENNIS GARTMAN’S NOT-SO-SIMPLE RULES OF TRADING

Rosie’s Rules to Remember

Louis Ehrenkrantz’ 7 Golden Rules for Investing

In Defense of the “Old Always” (Montier)

Lessons from Merrill Lynch

Gerald Loeb’s Market Wisdom

Lessons Learned from 37 Years of Futures Trading

Richard Russell’s The Power of Compounding

Doug Kass: 10 Laws of Stock Market Bubbles

The golden rules of investing (India)

25 Common Sense Money Tips

Dan Bunting’s Laws of Investing

Cassandra’s (Not so) Golden Rules About Investing (& Not Investing)

These are more general rules, not necessarily about investing:

50 Cognitive Distortions

Todd Harrison’s 12 Cognitive Biases That Endanger Investors

Lefsetz’s Business Rules

If you have any suggestions for any good lists of rules I may have missed, please link to them in comments. If they are worthy, they will get added to the list.

My own trading rules and favorite Trading Books are after the jump

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Category: Investing, Rules, Trading

Game Theory for Bulls & Bears

“Capitulation” is the term used to define a selling climax that often marks the bottom of a bear market. It translates into “surrender” — giving in to the overwhelming need to just make the pain stop. Retail brokers tell tales of individuals bailing out, often saying things like, “Just sell, get me out, please make…Read More

Category: Cycles, Investing, Psychology, Rules, Trading

Lefsetz’s Business Rules

1. You’ve got to get along. If you don’t have good people skills, you’ll never succeed, even if you run your own business. 2. Money talks. He who has cash has leverage, and someone always has more than you do. There’s rarely a deal between equals. 3. Leverage is not always about money. I.e. if…Read More

Category: Finance, Rules

Beware Consensus: When to Ignore the Investment Experts

One of the more interesting aspects of the market in 2014 is how much it has managed to defy expectations. Consensus has been consistently wrong; indeed, it seems that any time there is an agreement of sorts on just about any issue, the opposite has happened. Merrill Lynch’s legendary strategist Bob Farrell put together “10…Read More

Category: Investing, Really, really bad calls, Rules

Jeremy Grantham: Mistakes Made Over 47 Years

Jeremy Grantham’s quarterly GMO letter is out. It is a long rambling look at everything from Tesla to Fracking to Fertilizers to Food. But the narrative culminates with how as a young lad, Grantham made a trade based on a neighbor — legal inside information. He explains how that worked out, via his 8 lessons…Read More

Category: Investing, Psychology, Rules

Huprich: Wisdom Comes in the Smallest of Packages.

We previously published Art Hurpichs’ Market Truisms and Axioms back in 2011.  Art is a CMT with Day Hagan Asset Management, and he returns with an updated set of Stock Market Rules to Remember. Enjoy. ~~~ As you are reading this, we are in the process of moving our “youngest” to Virginia, as he prepares for…Read More

Category: Rules, Technical Analysis, Trading

Kass: 10 Laws of Stock Market Bubbles

I like this list from Dougie: Debt is cheap. Debt is plentiful. There is the egregious use of debt. A new marginal (and sizeable) buyer of an asset class appears. After a sustained advance in an asset class’s price, the prior four factors lead to new-era thinking that cycles have been eradicated/eliminated and that a…Read More

Category: Markets, Psychology, Rules

More Signal, Less Noise

Its Friday, the day I like to step back and get all Zen on y’all. As promised yesterday, our subject this morning — indeed, over the past few months — is how to reduce the meaningless distractions in your portfolio (and your life). You want less of the annoying nonsense that interferes with your investing,…Read More

Category: Cognitive Foibles, Financial Press, Investing, Psychology, Rules