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Ideas that spread

Not all great investing/trading ideas are profitable. Ideas that spread are. If no one else sees what you see and acts, you can’t make money. Hoping that eventually the rest of the market will understand and embrace your thesis is a loser’s strategy or a privilege for someone with very deep pockets. Markets often know more than you as they constantly try to discount all the available public and private information. You might be convinced that your analysis is right and the market is wrong, but it could remain wrong longer than you could remain solvent. The question again is do you have deep enough pockets to ride the storm out and aren’t there more plausible alternatives for your capital at the time. Smart people like to scale in and out of positions, knowing that no one can consistently pick tops and bottoms.

Take for example Jim Rogers. He is a typical contrarian investor, who likes to buy low and sell high. But he is not buying anything that is low priced and neglected. He buys cheap things only when he sees a fundamental change on the horizon – a catalyst that will help other market participants to re-evaluate their thesis and act on their new observations.

25 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.  (more…)

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