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Investing principles

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 counterintuitive and everything obvious is wrong.
  • Unconventional behavior is the only road to superior investment results.