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Lessons from Richard Bernstein, David Rosenberg,Bob Farrell

Richard Bernstein’s Lessons
1. Income is as important as are capital gains. Because most investors ignore income opportunities, income may be more important than are capital gains.
2. Most stock market indicators have never actually been tested. Most don’t work.
3. Most investors’ time horizons are much too short. Statistics indicate that day trading is largely based on luck.
4. Bull markets are made of risk aversion and undervalued assets. They are not made of cheering and a rush to buy.
5. Diversification doesn’t depend on the number of asset classes in a portfolio. Rather, it depends on the correlations
between the asset classes in a portfolio.
6. Balance sheets are generally more important than are income or cash flow statements.
7. Investors should focus strongly on GAAP accounting, and should pay little attention to “pro forma” or “unaudited” financial
statements.
8. Investors should be providers of scarce capital. Return on capital is typically highest where capital is scarce.
9. Investors should research financial history as much as possible.
10. Leverage gives the illusion of wealth. Saving is wealth.

David Rosenberg’s Lessons
1. In order for an economic forecast to be relevant, it must be combined with a market call. (more…)

6 Trading Sins

1. Thinking that trading  is a get-rich-quick scheme.
2. Reacting emotionally to market movement instead of assessing the market rationally using proven methods for high probability trades.
3. Chasing the Market.
4. Lack of preparation – entering the market with little or no understanding of what the probabilities are and how to handle them. Being unaware of special events or announcements that may be big marketmovers.
5. Butterfly Trading. Trying one method after another without mastering any.
6. “Go-it-alone” Syndrome, hoping to discover the ‘secret code’ for trading. Most successful traders have learned from other successful traders. This can eliminate years of trial and error, and some very painful trading losses.

5 Trading Pitfalls and how to Solve Them


Pitfalls
1. Focusing on the P & L

2. Losing objectivity while in a trade

3. Becoming emotional about a trade

4. Lacking confidence: exiting early, failing to put a trade on, not sizing up

5. Difficulty adapting to a changing market

Solutions
1. Quantify success base on the caliber of the trade (i.e. high quality entries/exits).

2. Continuously ask yourself, “is my original reason WHY I entered this trade still there?”

3. While you are in a trade, ask yourself, if I had no position on right now, what would I do? Buy? Sell Short? Do nothing? Then re-evaluate your trade size and direction.

4. Confidence should always come from within. Step#1: Write bullet list of data points proving WHY you are a skilled trader. Step #2: Prime yourself each morning by reading it over to yourself. Could be the most valuable 30 seconds you spend each day.

5. Flip your perspective by keeping track of what is not working (by default this tells you what IS working).

Keep your eye on the ball and your head in the game!