Posts filed under “Rules”
Gerald Loeb was a founding partner of E.F. Hutton & Co. He was the author of the books The Battle For Investment Survival and The Battle For Stock Market Profits. Following the 1929 crash, Forbes magazine called Loeb “the most quoted man on Wall Street.”
Via Ivan Hoff, today we look at the rules which Gerald Loeb amassed over his career:
Gerald Loeb’s Market Wisdom
1. The most important single factor in shaping security markets is public psychology.
2. To make money in the stock market you either have to be ahead of the crowd or very sure they are going in the same direction for some time to come.
3. Accepting losses is the most important single investment device to insure safety of capital.
4. The difference between the investor who year in and year out procures for himself a final net profit, and the one who is usually in the red, is not entirely a question of superior selection of stocks or superior timing. Rather, it is also a case of knowing how to capitalize successes and curtail failures.
5. One useful fact to remember is that 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 are the stocks that make new highs ahead of the averages.
6. There is a saying, “A picture is worth a thousand words.” One might paraphrase this by saying a profit is worth more than endless alibis or explanations. . . prices and trends are really the best and simplest “indicators” you can find.
7. Profits can be made safely only when the opportunity is available and not just because they happen to be desired or needed.
8. Willingness and ability to hold funds uninvested while awaiting real opportunities is a key to success in the battle for investment survival.-
9. In addition to many other contributing factors of inflation or deflation, a very great factor is the psychological. The fact that people think prices are going to advance or decline very much contributes to their movement, and the very momentum of the trend itself tends to perpetuate itself.
10. Most people, especially investors, try to get a certain percentage return, and actually secure a minus yield when properly calculated over the years. Speculators risk less and have a better chance of getting something, in my opinion.
11. I feel all relevant factors, important and otherwise, are registered in the market’s behavior, and, in addition, the action of the market itself can be expected under most circumstances to stimulate buying or selling in a manner consistent enough to allow reasonably accurate forecasting of news in advance of its actual occurrence.
12. You don’t need analysts in a bull market, and you don’t want them in a bear market
Great stuff, thank you Ivan!
Yesterday morning, I mentioned the extent of cognitive dissonance surrounding the Gold was surprising (What Are Gold’s Fundamentals?). The reaction to Gold’s crash has produced some astonishing rationalizations. The refusal to acknowledge basic trading facts leads us to recognize that Gold bugs and traders have very specific rules that they MUST follow. These social conventions…Read More
I stumbled across this interesting and exhaustive list of common cognitive distortions. It should come as no surprise that quite a few of these are applicable to investors. Here are a few that I found relevant: 3. Negative predictions: Overestimating the likelihood that a market or economic report will have a negative outcome. 7….Read More
Before Todd Harrison created Minyanville, he was an options trader at Morgan Stanley, eventually becoming President of Cramer Berkowitz, where he toiled as head trader at Jim Cramer’s hedge fund. Todd has an excellent analysis of the various biases that endanger investors. Here is the full list: 1. Confirmation Bias 2. In-Group Bias 3. Gambler’s…Read More
Way back in 2011, we pulled together a run of some of the Trading Rules & Aphorisms that show up on the site. It turned out to be a popular post, and I added “Rules” as a new category.
Thus, we update this semi- annually. These are my traders, analysts, economists and investors views’ on what to do — and what not to do — when it comes to markets that have been published on TBP.
Here is the latest update:
Trading & Investing Rules, Aphorisms & Books
• In Defense of the “Old Always” (Montier)
• The golden rules of investing (India)
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
Keep it simple, avoid the pitfalls Barry Ritholtz Washington Post, January 25 2013 “A simple, albeit less than optimal, investment strategy that is easily followed trumps one that will be abandoned at the first sign of under-performance.” That’s from Tadas Viskanta of Abnormal Returns, a “forecast free” investment blog. He was…Read More
My Sunday Washington Post Business Section column from yesterday — Keep it simple, avoid the pitfalls — described 10 ways to keep your investing simple. Here are my 10 (plus 2 corollaries) Simplify Your Investing 1 Go passive. 2 Diversify across asset classes. 3 Be mindful of valuation. 4 Dollar cost averaging. 5 Keep costs…Read More
My Sunday Washington Post Business Section column is out. This morning, we look at the advantages of avoiding complexity in your investment process. The print version had the simple headline Simplifying Your Investment Strategy while the online version used the hedder Keep it simple, avoid the pitfalls.
There are know advantages to certain complex investing strategies, but these complexities become harmful disadvantages most of the times, as Humans are emotionally unable to follow them.
By creating an investment plan that is simple and easy to follow, you make it more likely that you will ultimately succeed and reach your goals. Hence, all of the familiar themes get mentioned in my focus on simplicity: ETFs, lower costs, diversification, rebalancing, dollar cost averaging, etc.
Here’s an excerpt from the column:
“We must recognize our own behavioral errors. To be blunt, you are not likely to become a cognitive Zen master anytime soon. But a little enlightenment could keep you from making some common investing errors.
Knowing these limitations, we can design an investment plan to circumvent the behavioral pitfalls. And a good step is to simplify. Toward that end, keep these 10 ideas in mind when approaching your portfolio”
The 10 ideas are not groundbreaking — but they are often overlooked.
Less can be more.
Keep it simple, avoid the pitfalls
Washington Post, January 25 2013
Michael: I don’t know anyone who could get through the day without two or three juicy rationalizations. They’re more important than sex. Sam: Ah, come on. Nothing’s more important than sex. Michael: Oh yeah? Ever gone a week without a rationalization? -The Big Chill One of the things we all do as…Read More
Keep it simple, avoid the pitfalls Barry Ritholtz, Washington Post, January 25 2013 “A simple, albeit less than optimal, investment strategy that is easily followed trumps one that will be abandoned at the first sign of under-performance.” That’s from Tadas Viskanta of Abnormal Returns, a “forecast free” investment blog. He was…Read More