Horizontal links

Tuesday, 29 November 2016

Bernard Baruch - 10 Rules of Investing 



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.

Why?

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.”


Wink.



32 comments:

  1. When comes to Rules of Investing for knowledge, the more you read the more you don't know who or what to follow.

    You still have to find out what really works for you by doing it.

    Besides, we read the same thing but our understanding and put into practice may be different.

    ReplyDelete
    Replies
    1. temperament,

      Exactly.

      A "white piece of paper" will just absorb everything without question; while an "osmosis membrane" is rather selective what it will allow to pass through ;)


      All the knowledge and wisdom in the world will come to naught if we do not have the self-discipline to put them into action.

      Delete
    2. agree with temperament, the more you read the more you will be confuse! the best way is learn through your own mistake and feel.

      i don't care what others golden rules are, i create my own rules, that being said, they are quite similar to those written above especially number 1!

      Delete
    3. coconut,

      And that's how it is.

      When we move away from our initial "newbieness", from awkward intermediate to self-assured advance stage, we now rely more on what works for us ;)

      This where we are confident to challenge established norms and conventions that are mere platitudes.

      And know how to verify whether a person's words have the backing of gold; or whether there are as light as snow flakes ;)

      Delete
  2. Thanks for the recommendation! Another book for me to buy :D

    I think I have made a few of the mistakes lined out above, just that I'm not suffering from any of it.......yet.

    ReplyDelete
    Replies
    1. Unintelligent Nerd,

      You're welcomed!

      I much prefer the "classics".

      The bonus is we get a bit of financial history for free ;)

      One, human speculative behaviours have not changed.

      Two, it gives us a perspective to benchmark our current situation.

      Enjoy!

      Delete
  3. hi
    the recommendations in this post omited the golden rule I use...ie dividends. how come? is it more for traders?
    a portfolio which produces dividends every month like what i have, is therapeutic in the sense when the market goes down, the incoming dividends provides new cash flow, and this gives both a positive psychological effect as well as real money to buy cheaper stuff in a negative market. I find this very useful.
    what u think?

    ReplyDelete
    Replies
    1. Dividend is King. Something that traders don't get it. LOL!

      Delete
    2. Hello King Yoland aka Mr Ang Gong Gong,

      I thought the Golden Rule is:

      Do not impose on others what you do not wish for yourself.

      Yup, Confucius spoke it 500 years before Jesus.



      Let a hundred flowers bloom!

      If your style works for you, stick with it.

      From the way you phrased your question, I suspect your "strategy" has not been stress tested with an actual 2008 Lehman or 1997 Asian Financial Crisis event...

      I too have benefitted from the 2008 Lehman event; but this time, I'm making sure I don't lose it back in the next bear market.


      P.S. I pay for my lifestyle with dividends from my investment portfolio; but funny how I don't ever talk about it.

      I guess I'm not a yield hog?

      Delete
    3. CW,

      LOL!

      Evidently you are not familiar with carry trades or profiting from time decay in selling options ;)

      Anyway, do whatever makes us happy!



      Delete
    4. Ya. Selling options as passive income. If not wrong; one local guru has migrated from option selling to value investing. :-)

      Delete
    5. CW,

      LOL!

      He changed tactics.

      Go where the market is - Value and Dividend Investing are the 2 most popular flavours of the season now ;)





      Delete
  4. u are truly man of leisure...
    well..2008 my portfolio was much smaller with less counters. i was earning a comfortable living actively. so did not really feel it.
    now portfolio larger. and I've been putting all sort of 'shock absorbers' in it lets see whether it can withstand the next 'big one'.
    AFC...i was not working yet.

    cheers!

    ReplyDelete
    Replies
    1. Any retail investors survived the great pains from AFC and today are still active in the stock market are great ones.

      Many have chopped their fingers after AFC and never again in the stock market. No amount of success stories ever get them motivated.

      Delete
    2. Ang Gong Gong,

      I experienced the 2000 Nasdaq crash that wiped out my past winnings and a big chunk of my capital.

      Lucky that amount was "small" compared to today, and I had a day job then. Recovery not difficult.

      Now?

      The me of today is different from the me of yesterday. Hence I can't use the same strategies that got me here.

      I'm walking down the mountain; not up ;)

      Delete
    3. CW,

      That's why I never encourage or motivate anyone to do "investing".

      That catalyst has to come from that person within.

      It really is not easy!

      The majority will lose so the minority can benefit.


      Delete
  5. "1. Don’t speculate unless you can make it a full-time job."

    i wonder how many can't even pass the first rule?

    ReplyDelete
    Replies
    1. "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."

      i guess no body even bother about this one!

      Delete
    2. traders who don't like to cut losses are one who do not want to admit making mistake.

      Delete
    3. coconut,

      ;)

      There are lots of trading principles that can be employed to make us better in investing.

      With daily mark-to-market accounting for our trading accounts, the "truth" is looking right back at us all the time.

      There is no silly "sweep under the carpet" excuses like:

      1) I don't mind the paper losses... I invest for the long term. (Right, you not wrong; just early)

      2) It's not a loss if I add back all the dividends I've collected... (So the dividends were from your own capital?)

      3) I don't use cut loss. (You use buy and hope)


      Any traders who say they don't use cut loss must either ensure they never make a money losing trade ever; or don't be surprised when their trading accounts blew up!

      OK lah! If the trading account is a tiny $5K, blew up won't die.

      But if its $50K or $500K, then its like the old trading joke:

      How to end up with $1 million from trading?

      Start with $10 million.

      Ouch!

      Delete
    4. even investors must learn to cut bad investment!

      i recently learn from a friend "oh, i buy only blue chips". haha good luck!

      there is a saying in trading, if it is easy to do, don't do it!

      Delete
    5. i guess majority when comes to rules, they only choose the easy to follow one, the hard to do one, never mind la haha.

      Delete
    6. coconut,

      Does not matter what rules we follow, just as long:

      "those who are able to muster the necessary self-discipline:”


      In prosperous time its much easier to follow the rules we've set for ourselves.

      But when bear as in 2009 comes back to test our convictions -

      1) Portfolio cut in half;

      2) dividends reduced;

      3) even worse; dividend suspended...


      I guess that's when investors and traders alike will stare into the abyss...

      And wonder what's staring back at us...


      Delete
    7. Wah. Excellent use of Nietzsche. Very apt!

      I shall continue on with "Life can only be understood backwards; but it must be lived forward."

      Delete
    8. Unintelligent Nerd,

      LOL!

      Its not everyday someone would quote "knee-cha".

      "What doesn't kill me will make me stronger!"


      OK, I'll put a mental hook that Unintelligent Nerd is not a Christian ;)

      Shh...

      Delete
    9. Oh? You'll be surprised.

      Actually, I'm quite keen to listen in on the trio's sharing of the Doctrine of Election. I think one is busy preparing to be a new father again, the other went on a holiday with his family. Only one of them is free now though :/

      Hopefully could call those 3 out + you for kopi soon!

      Delete
  6. Ha! Ha!

    My dividends income has been always highest during the Bear Market.

    And the lowest like now.

    I don't know is there a better way for me or not?

    ReplyDelete
    Replies
    1. temperament,

      You old ginger you!

      That's should be the way right?

      This we only found out AFTER going through a full boom/bust/boom cycle ;)

      When I reach your age, I hope I'll still be intact like you!

      Cheers!

      Delete
  7. You definitely will.

    i think you will be like "Qian Nian Lau, Lau"

    Aka "Qian Nian Lau Yau"

    ReplyDelete
    Replies
    1. temperament,

      Eh... Not sure whether that was a compliment???

      Thanks but I much prefer to be 韦小宝 ;)

      Delete
  8. Ha! Ha!

    i see woman, wine, songs can not be separated from you.

    Of course lah!

    But to live to an ripe old age, must have the "Qian Nian Lau Lau's Kungfu"

    ReplyDelete
    Replies
    1. temperament,

      You're a naughty old man!

      That's what makes living worth it :)

      Delete

Related Posts Plugin for WordPress, Blogger...