If you ask retail and professional traders alike, most will agree one of our all time favourite trading bible will be:
Reminisces of a Stock Operator by Edwin Lefèvre.
It's a thinly disguised biography of Jesse Livermore.
A lot of trading's popular adages came from that book. If you have not already read it, I would highly recommend it. It's not your typical trading book. I promise you that!
However, there's a fly in the ointment. Jesse Livermore blew his brains out...
A fitting reminder to all traders out there, I guess.
This post is not about Jesse Livermore.
I would like to introduce to the newer traders out there another one of the great traders during Jesse Livermore's time - Bernard Baruch.
Well, for one, he speculated himself into a great fortune before 30 (a bit like those young 20 somethings start-up millionaires of today).
Escaped the Great Depression.
Became advisor for economic matters to 2 US Presidents.
Lived to a ripe young age of 95.
Evidently he is more than just a speculator.... Wink.
Bernard Baruch's 10 rules of Investing
“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.
OK, point no.8 is not applicable to us Singaporeans. What must we do? 1, 2, 3, ready?
Thank you Big Daddy!
Retail investors and traders just starting out, you'll probably read and shrug.
No worries, just remember to refer to Bernard Baruch again when you have several more years of track record, then you may appreciate the meanings better.
Especially when you blew your trading account or experienced a devastating meltdown in your investment portfolio....
Veteran retail traders and investors out there, how?
Whether you agree or not is the question right?
You and I will agree the secret sauce is:
"for those who are able to muster the necessary self-discipline.”
In the world of trading, I've learnt from painful experience its better to take a quick and small realised loss than to suffer a conviction sapping and margin eroding unrealised loss.
Once I have cut loss; I feel relieved.
Money can lose; but presence of mind cannot. Same goes for the investment side of my portfolio. Not taking profit can mess with our minds too. Take for example - M1, a stock I'm not vested in. If you had bought in at $1.50 during 2009, you would be a most happy retail investor during March 2015 - M1 hit $3.94! That happiness was short lived as by May 2015, it broke below $3.50. Some of you wily old fox retail investors may have sold all or half your position here. Any lingering doubts whether you have done the right thing are all cleared out during August 2015 when M1 broke below $3.00. This was your last chance to protect your 2 bagger winnings. Want to guess how the person who didn't sell at $3.00 is feeling now? Would he join others in adding to M1 at below $2.00 since its "so cheap"? Or would he be more likely to "capitulate" and sell if M1 drops down to $1.80? Surely he is not going to let a winning position turn into a loss? Or?
All of us have our "uncle point".
Once we've reached that level, we become like headless chickens.
Its better not to let ourselves be in such situations.