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Louis Ehrenkrantz’ 7 Golden Rules for Investing

  
  Education
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First rule: develop a large appetite for
reading; it will hone your instincts for finding successful companies.

Second
rule: don’t overdiversify; ten stocks, in at least three sectors, are
enough for the average investor.

Third rule: stick with your winners and sell
your losers; do not automatically sell when a stock hits a target price, but
continue to hold it as long as it performs well and has good prospects for the
future.

Fourth rule: look for top-quality, out-of-favor companies; look for
companies that produce an array of high-quality products and/or services.

Fifth
rule: don’t worry about earnings if a company makes a popular product; strong
earnings growth will follow.

Sixth rule: don’t tinker with your portfolio; check
your portfolio’s performance only once or twice a year.

Seventh rule: don’t be
afraid to hold cash; it’s okay to be prepared to purchase stocks with
beaten-down prices after a correction.

Bernard Baruch:Trading Legend

  
  Education
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Baruch was born in 1870 in South Carolina. He was a great student of finance, reading everything he could find about the subject, always trying to learn more. Baruch found out the education process takes time, especially when it comes to trading the stock market.

Early on, Baruch made many of the same mistakes that most traders make. Ultimately, after much dedication to learning proper trading principles, he amassed a huge fortune in the markets. Because of his intellectual reputation, he even held appointive positions in four presidential administrations, and served as an advisor to six different presidents.

In his book titled “My Own Story”, Baruch gives us some rules or guidelines on how to invest or speculate wisely.

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 to 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.

Not That Simple

  
  Education
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One of the biggest problems I see new traders struggle with is the mindset that somehow trading can be approached differently from other ventures or activities. This is something which either comes from too much focus on the prospects of profits and easy wealth building (greed, in short) or from just not considering that it is an activity which requires skill to do well.

Trading is easy. I mean pointing and clicking to buy and sell is about at simple as it gets.

Playing guitar is easy too. Just pluck or strum. No one thinks they are going to pick up a guitar and become the next Jimi Hendrix, though. They know it takes hours and hours of practice to develop even a basic ability to play, nevermind getting to the point of having people pay to listen to you.

Why do people think that things are different in trading?

Good trading requires learning and practice – just like anything else you want to get good at. There are no quick solutions. Don’t expect them, and don’t let anyone lead you to believe that there are.

Trading ,Not So Simple

  
  Education
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Becoming a good trader doesn’t happen overnight. Just as with any other skill or discipline, it requires time and practice to become proficient at it:

One of the biggest problems I see new traders struggle with is the mindset that somehow trading can be approached differently from other ventures or activities. This is something which either comes from too much focus on the prospects of profits and easy wealth building (greed, in short) or from just not considering that it is an activity which requires skill to do well.

In Enhancing Trader Performance, Brett Steenbarger talks about trading as a performance activity. He relates it closely to athletics, but you could very easily extend the metaphor to any other activity which takes time and effort to progress in skill. The point is that you cannot expect to just jump right in and be an expert. You must progress through stages of understanding, competence, and experience.

Trading is easy. I mean pointing and clicking to buy and sell is about at simple as it gets. (more…)

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