Interesting set of rules from legendary investor John Templeton:
1. Invest for maximum total real return
2. Invest — Don’t trade or speculate
3. Remain flexible and open minded about types of investment
4. Buy Low
5. When buying stocks, search for bargains among quality stocks.
6. Buy value, not market trends or the economic outlook
7. Diversify. In stocks and bonds, as in much else, there is safety in numbers
8. Do your homework or hire wise experts to help you
9. Aggressively monitor your investments
10. Don’t Panic
11. Learn from your mistakes
12. Begin with a Prayer
13. Outperforming the market is a difficult task
14. An investor who has all the answers doesn’t even understand all the questions
15. There’s no free lunch
16. Do not be fearful or negative too often
Complete explanation after the jump (more…)
Bonus: A form of extortion whereby employees of a company extract either shareholder or taxpayer money for their own pleasure regardless of the success or failure of said company.
Derivatives: Trading vehicles created by over-educated finance professionals for whom speculating in stocks and bonds was not quite risky or volatile enough.
Bulge Bracket Firm: A Wall Street investment bank that is literally “bulging” with off-balance sheet leverage and bloated pay packages for the architects of said leverage. They used to be referred to as “Too Big to Fail”, circa 2007-2008; they are now extinct.
Credit Ratings: These are fictitious opinions of health and financial strength that are sold to the highest bidder. The business of assigning credit ratings to bonds is similar to the business of receiving payola at a radio station for playing a particular record more often than others.
Department of the Treasury: This is a government agency in charge of rescuing companies and executives who make bad decisions or investments. Oh yeah, another minor function they serve is printing the nations currency.
Federal Reserve: An institution that ensures the inflation and subsequent bursting of asset bubbles roughly every 7 years.
Hedge Fund: A betting pool, similar to a group of employees or friends who all contribute their money to a pot and buy lottery tickets. Only in this case, a few of the participants charge everyone else involved a fee for picking which lotto numbers they will play. (more…)
On a recent plane trip, yours truly polished off “How I Trade and Invest in Stocks and Bonds” by Richard D. Wyckoff.
Originally published in 1924, this short little book is a classic — well worth revisiting — and will later get a full review in its own right. (There is just something wonderful about old trading books.)
For now, though, the below passage is excellent — a classic demonstration of utilizing all the principles of the game.
Next in importance to knowing what to buy is the question as to when it should be done. (more…)