Investing and Trading Principles

We share some of our investing principles we adhere to when trading and managing portfolios. Included are also some witty truisms which, nonetheless, can save a portfolio manager from a major mistake!

Trading

• Buy and sell what you see, not what you believe.
• Price charts are by far the most reliable indicators – they never lie.
• A trader can never know in advance which trades will work. The problem only occurs when he thinks he knows.
• Hope is the worst investment strategy. Being in a state of hope is a sign that the trader has no control over his position.
• Don’t let greed and fear dominate your response to a situation.
• Never enter a position without knowing how you’ll get out.
• Being too far ahead of your time is indistinguishable from being wrong.
• Losers think in terms of how much they can gain. Winners think in terms of how much they can lose. Losers are oriented towards results; winners are oriented towards execution.
• Take care of your losses and your profits will take care of themselves.
• Error is not being mistaken in a trade, but rather to remain in the error.
• The news follows the market.
• Analyze the market dispassionately before it opens.
• A bull market is defined by rising peaks and a bear market by falling troughs. Always be conscious of the market trend.
• When you miss an entry point, don’t chase after the stock. Wait for another entry point or find another stock.

Risk

• The trader who does not know how much he is risking is effectively risking everything. Never open a position when the risk is not defined in advance.
• Three elements go into successful stock trading: (1) limit your losses, (2) limit your losses, (3) limit your losses. If your follow these three rules you’ll have a chance.
• Never take a position larger than you should be taking. The gods of the stock market disapprove, and they will let you know.
• Of all the speculative blunders, none is greater than averaging down a losing position.
• If your position is too big, you will bail out at the wrong moment. When your position size is appropriate, you are ready to be greedy when others are fearful.
• One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do.

Asset Selection

• You can not beat the market following the consensus. Being different is absolutely essential if you want a chance at being superior.
• Superior investment results can only stem from a better-than-average ability to figure out when risk-taking will lead to gain and when it will end in loss.
• Investing is not supposed to be easy. Anyone who finds it easy is stupid.
• Everything important in investing is counter-intuitive and everything obvious is wrong.
• Unconventional behavior is the only road to superior investment results.