Archives of “investments” tag

rss

GERALD M. LOEB on GAINING PROFITS BY TAKING LOSSES

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

One of the many books on my desk right now is a classic written over 70 years ago by the stock market legend Gerald M. Loeb.  Loeb was a well respected Wall Street broker, not because he possessed some magic investing genie lamp but because of the following nugget of wisdom, one of many from The Battle For Investment Survival in a section entitled Gaining Profits By Taking Losses:

Accepting losses is the most important single investment device to insure safety of capital.  It is also the action that most people know the least about and that they are least liable to execute.  I’ve been studying investments, giving investment advice and actually investing since 1921.  I haven’t found the real key yet and don’t ever expect to, as no one has found it before me, but I have learned a great many things.  The most important single thing I learned is that accepting losses promptly is the first key to success.
 

Some things never change.

What does Money Management do for a Trader?

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

Money management keeps them in the game of trading. It is a game and there are winners and losers. The vast majority are losers. More than 90%! Once traders realize they need an exact plan…traders retool their approach, once they analyzed their trading system with money management concepts. Money management keeps traders …trading…

Past performance is not necessarily indicative of future performance. The risk of loss in trading futures contracts, commodity options or forex can be substantial, and therefore investors should understand the risks involved in taking leveraged positions and must assume responsibility for the risks associated with such investments and for their results. You should carefully consider whether such trading is suitable for you in light of your circumstances and financial resources.

Remember These 13 Points

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #
  1. Predictions do not work as tomorrow is uncertain. We will only boast about things we have predicted right and talk nothing about the other half we got wrong.
  2. Skills can bring us moderate success. However, luck is needed to be a big success. (credit to Jon)
  3. We tend to credit our successes to good skills and blame our failures on poor luck.
  4. Some of us rely on luck (most unknowingly) by investing for high returns (and losses). A few of us will make big money but most of us will end up much poorer.
  5. Some of us deliberately limit the luck factor by choosing investment products with capital guarantee and guaranteed returns. None of us will make big money but none of us will be very much poorer.
  6. We need to know how much we can afford to lose (financially and emotionally) before deciding to be No. 4 or No. 5, or somewhere in between.
  7. We have many biases. The degree of success in investing or trading depends on how much we can keep our biases in check. No, we cannot remove our biases totally.
  8. Confirmation bias – we see what we want to see. We seek out evidence to validate our investment decision and ignore those that suggest otherwise.
  9. Availability bias – we are influenced by the things we observe. If people we knew made a lot of money through property investment, we will think that properties are the best investments in the world and develop a preference for it.
  10. Loss aversion bias – we want to be compensated for high returns before we decide to take the risk to invest. We often wait for markets move and show high returns before we want to invest. We are not interested if markets are not moving.
  11. Hindsight bias – we tend to say “I knew it” after an event has happened.
  12. Survivor-ship bias – we only get to hear stories of successes but many stories of failures were untold.  See No 2 and No 3.
  13. Most us do not know what we want in life. We think we will be happier with more money.

Jim Rogers: Here's The Most Important Thing On What Investors Should Do

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #
I would say one lesson we all need to learn is that after you’ve had a great success, you really should be very worried. Let’s say you sell and say you’ve made 10 times on your money. You should be extremely worried. You should close the curtains, not read, look at the TV, or anything because that’s when you’re full of hubris, arrogance, confidence. You think, “God, this is something easy,” and you’re desperate to jump around to something new. You should do your very best to avoid making another play until you’ve calmed down a lot. Just wait. It’s a very dangerous time for any investor.

Likewise, if you take a huge loss and there’s a big panic and things are dumped on your head because you’re overextended or wrong for whatever reason, calm down, don’t say, “I’m never gonna invest in stocks again or commodities or whatever.” That’s the time you really should be willing to invest again if you can gather together some capital money. The investments can be terribly emotional. You have to figure out a way to control your emotions and deal with your emotions if you’re going to survive in these markets.

My advice is that, most of the time, most investors should do nothing. They should look out the window or go to the beach. You should wait until you see money lying in the corner and all you have to do is go over and pick it up. That’s how most investors should invest. The problem is we all think we need to jump around all the time and be jumping in and out and that’s not good. (more…)

WISDOM FROM BERNARD BARUCH

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

From the SAME AS IT EVER WAS file: Bernard Baruch, a colleague and friend of Jesse Livermore’s, who made a fortune shorting the 1929 crash, and then who later advised presidents Woodrow Wilson and Franklin D. Roosevelt on economic matters, listed the following investment rules in his autobiography published in 1958 entitled Baruch: My Own Story.  These rules are still as applicable today.


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.

What are you certain about the market or trading?

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

If I do not take it will take from me.
You are only as good as your last trade.
Rigidity and complacency ends careers.
Always get paid for taking risk.
A trend never ends when it should.

I am certain that the only way for me to have a chance to be a successful trader is to do daily work and not become lazy or use shortcuts.

I am certain I would rather take every planned trade and lose than not execute a planned trade.

I am certain I am always uncertain before taking a trade. I am certain when I am most relaxed in my mind is when I am doing the right thing regardless of the outcome.

I am certain there is no mathematical (technical) formula to beat the market. If there was, there wouldn’t be a market.

I am certain that opportunities are easier made up for than losses. I add one more: I am certain that the habits or procedures we resist represents our true trading system at that moment.

I am certain that trying to ‘predict’ will end in failure.

I am certain that most of my trades that I convince myself to make investments will end up losing money.  I am certain that if I do not plan a trade including stop loss  points I will be sorry.  I am also certain that I will violate both of the above sometime in the next month.

I am certain that I know myself…. or at least I think I do for the moment.

I am certain that uncertainty is a concept that most traders need to come to terms with before any sort of success will be attained.

12 Rules to Invest

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

1. Do not let trades become investments, but it is ok to let investments become trades.

2. Personality first. Know yourself! (The markets will exploit your weaknesses)

3. Develop your own approach.

4. Be flexible because you will be very wrong.

5. Find mentors. Today! Don’t expect anything from them.

6. START today. While learning how to invest, decide on an amount that you can invest in the markets and dollar cost average. Invest an equal amount of money once a month or quarter for a long period of time.

7. Keep your costs down.

8. Focus on your strengths, invest some profits in your weaknesses.

9. Do not ‘practice’ investing and do not call your investing money ‘Vegas’ money. Develop a routine.

10. Write it down! Start a journal.

11. Immerse yourself in the language of the markets and investing. It has never been easier.

12. Knowing when and how to sell remains the most mystical of processes. I just say do it consistently. There is no shame in leaving money on the table.

10 Top Trading Commandments

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


  • Discipline trumps conviction. Don’t let your bad trades turn into investments.

  • Perception is reality in the market. Adapt your style to the market, and learn to accept the market as it is, not how you wish it was.

  • Play great defense, not great offense. Opportunities are made up easier than losses.

  • Don’t confine your thinking in terms of boundaries. Expect the extreme, and don’t miss major profit opportunities.

  • Know your companies. Hold your stock as long as it is performing properly, cut your losses fast, and don’t “hope” for a rebound.

  • Risk control is important. Always quantify your risk going into a trade.

  • Be diligent and thorough in your research. Do your homework, recap each day, and learn from your mistakes.

  • Don’t get caught in a situation in which you could lose a great deal of money for reasons you don’t understand.

  • Respect the price action, but never defer to it. When unsure, trade “in between.”

  • Emotion is the enemy when trading. Be greedy when others are fearful, and fearful when others are greedy.

    • Book Review: Think, Act, and Invest Like Warren Buffett

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

    This is a tough book to review, because I generally respect the author, but there are many things I don’t like about the book.  Let’s start with the main one:

    My friend Alice Schroeder came to speak to the Baltimore CFA Society early in November.  It was a great talk, and afterward, I took her back to the Amtrak station.  What was our main topic of conversation?  The many authors with limited or no dealings with Warren Buffett who invoke his name in order to get better sales.  I won’t name names.  I have relationships with a number of them.

    I will review “The Snowball” soon.  Alice Schroeder spent around five years creating that lengthy book, and I can see why she would be upset over those that use Buffett for their own personal gain.

    This book is another example of that.  Only chapters 1 and 2 have anything to do with Buffett, and there he is quoted extensively to the point where he should be listed as a secondary author, and get a cut of the royalties.  But in the next nine sections have almost nothing from Buffett; it is all the philosophy of Larry Swedroe. (more…)

    Bernard Baruch: 10 Rules of Investing

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

    “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.

    Go to top