Rules for Trading

Rules for Trading#

These are just quotes from legendary investors like Ray Dalio and Warren Buffett, I could rewrite this or take this section out if I publish this book and sell it.

Tip

“If you don’t find a way to make money while you sleep, you will work until you die” — Warren Buffet

Key Thoughts from Intelligent Investor#

  • A stock is not just a ticker symbol or an electronic blip; it is an ownership interest in an actual business, with an underlying value that does not depend on its share price.

  • The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The intelligent investor is a realist who sells to optimists and buys from pessimists.

  • The future value of every investment is a function of its present price. The higher the price you pay, the lower your return will be.

  • No matter how careful you are, the one risk no investor can ever eliminate is the risk of being wrong. Only by insisting on what Graham called the “margin of safety”—never overpaying, no matter how exciting an investment seems to be-can you minimize your odds of error.

  • The secret to your financial success is inside yourself. If you become a critical thinker who takes no Wall Street “fact” on faith, and you invest with patient confidence, you can take steady advantage of even the worst bear markets. By developing your discipline and courage, you can refuse to let other people’s mood swings govern your financial destiny. In the end, how your investments behave is much less important than how you behave.

  • how you can minimize the odds of suffering irreversible losses;

  • how you can maximize the chances of achieving sustainable gains;

  • how you can control the self-defeating behavior that keeps most investors from reaching their full potential.

Taken from [BG73]

Takeways from debt crisis#

The easing by the Federal Reserve also produced a bull market in stocks that showed every sign of a classic bubble. I’ll repeat my defining characteristics of a bubble:

* Prices are high relative to traditional measures
* Prices are discounting future rapid price appreciation from these high levels
* There is broad bullish sentiment
* Purchases are being financed by high leverage
* Buyers have made exceptionally extended forward purchases (e.g.,

built inventory, contracted forward purchases, etc.) to speculate or protect themselves against future price gains.

[Dal18]

Things to remember when buying stocks#

Caution

  • Margin of safety

  • Area of experticity

  • Something you understand

Caution

Never buy a stock immediately after a substantial rise or sell one immediately after a substantial drop - [BG73].

Note

Diversification is protection against ignorance. It makes little sense if you know what you are doing - Warren Buffett.

Tip

When asked what keeps most individual investors from succeeding, Graham had a concise answer: “The primary cause of failure is that they pay too much attention to what the stock market is doing currently” [BG73].

Tip

Among the “few prudent principles” that investors forgot were such market clichés as “Trees don’t grow to the sky” and “Bulls make money, bears make money, but pigs get slaughtered.

[BG73] (1,2,3)

Warren E. Buffett Benjamin Graham, Jason Zweig. The Intelligent Investor. Volume of. Harper Business, revised edition edition, 1973. ISBN 9780060555665,0-06-055566-1. URL: http://gen.lib.rus.ec/book/index.php?md5=e8647599ac32f0c5eb4333351811c886.

[Dal18]

Ray Dalio. Principles For Navigating Big Debt Crises. Volume of. Bridgewater, paperback edition, 2018. ISBN 1732689806,9781732689800. URL: http://gen.lib.rus.ec/book/index.php?md5=dd07c79ae9794312817260f036223922.

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