Archives of “February 2019” month

rss

Bernard Baruch’s 10 Rules

  
  Education
#  #  #  #  #

You want someone to emulate?

Bernard Baruch (August 19, 1870 – June 20, 1965) was the son of a South Carolina physician whose family moved to New York City when he was eleven year old. By his mid-twenties, he is able to buy an $18,000 seat on the exchange with his winnings and commissions from being a broker. By age 30, he is a millionaire and is known all over The Street as “The Lone Wolf”.

In his two-volume 1957 memoirs, My Own Story, Baruch left us with the following timeless rules for playing the game:

“Being so skeptical about the usefulness of advice, I have been reluctant to lay down any ‘rules’ or guidelines on how to invest or speculate wisely. Still, there are a number of things I have learned from my own experience which might be worth listing for those who are able to muster the necessary self-discipline:”
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. This 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. If you have made a mistake, cut your losses as quickly as possible.
6. Don’t buy too many different securities. Better have only a few investments which can be watched.
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 greatest 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.

(more…)

Losers Average Losers

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

There is a famous picture of Paul Tudor Jones relaxing in his office with his feet kicked up. A single sheet of loose-leaf paper is tacked on the wall behind him with the simple phrase written out in black marker: “Losers Average Losers”. Trite meaningless talk? Not so fast.

Famed trader Jesse Livermore warned 100 years ago against averaging losses. For example, you buy a stock at 50, and two or three days later if you can buy it at 47, you average down by buying another hundred shares, making an average price of 48.5. Having bought at 50 and being concerned over a three-point loss on a hundred shares, what rhyme or reason is there in adding another hundred shares and having the double worry when the price hits 44? At that point, there would be a $600 loss on the first hundred shares and a $300 loss on the second shares. If you are able to apply such an unsound principle, you can keep on averaging down by buying 200 at 44, then 400 at 41, 800 at 38, 1600 at 35, 3200 at 32, 6400 at 29, and so on (source: Jesse L. Livermore, How to Trade in Stocks: The Livermore Formula for Combining Time Element and Price).

Losses are a part of the game. You want no losses? You want positive returns every month? It does not work that way, that is, not unless you were lucky enough to be invested in the Bernard Madoff Ponzi-scheme which has resulted in assorted criminal convictions and a few suicides. Losses are not your problem. Its how you react to them. Ignore losses with no plan, or try to double down on your losses to recoup, and those losses will come back like a Mack truck to run over your account.

Wisdom Not to Be Ignored

Don’t frown, double down! Not smart strategy.

Escalator up, express elevator down.

You can’t win if you are not willing to lose. It’s like breathing in, but not breathing out.

Self-awareness

  
  Education
#  #  #  #  #  #  #  #

1) the recognition that our thinking and our emotions are intertwined and both influence our perception and judgment that leads to our decisions and actions (this view also happens to be consistent what the leading brain scientists are now saying)

2) much of our motivation – the intertwined thinking/emotion that drives our behavior – is actually subconscious, e.g. we assume we are trading the market but on other levels we are also trading our P&L and our feelings about our P&L  (and what our P&L represents to us) is just one example.

3) when we understand (self-awareness) the underlying/subconscious motivation for our behavior we are in a better position to choose an alternative.

Obviously, nothing can guarantee change or improvement (contrary to many claims made by pseudo “experts”), but at least an approach that emphasizes expansion of awareness puts the odds in your favor. (more…)

Go to top