An Overdose of Investment Advice
April 30, 2009 by Chip Wood
Whew! By the time you receive this, I will have just finished my MC duties at two back-to-back investment conferences. First came the Atlanta Investment Conference, where a host of newsletter editors, market analysts, and other wizards told us what they expected the market to do over the coming months.
Best line of the conference was someone who quoted Barack Obama as saying, “If I weren’t President, I’d be buying stocks now.” And followed it by saying, “Heck, if he weren’t President, I’d be buying stocks, too.”
Before I could compile a list for you of their best recommendations, I had to hop on a plane and fly to Bermuda (yes, sometimes it’s tough duty), where I was the MC for the Total Wealth Symposium sponsored by the Sovereign Society.
The focus there was on international diversification, rather than stock picks in the U.S. There was an overwhelming consensus on the part of the speakers that the tsunami of new spending coming out of Washington is going to do terrible things to the U.S. dollar.
It’s going to take me several more days to sift through all of the ideas I heard and come up with a coherent summary for you. But that will be high on my list of priorities when I return home.
So for this week, no specific investment suggestions for you. Instead, I want to repeat some of the best financial advice that’s ever appeared in this column.
Dennis Gartman’s Rules of Investing
One of the smartest market commentators in the business is Dennis Gartman. I’ve had the pleasure of hearing him at several investment conferences and have even had the privilege of introducing him once or twice.
He makes more sense — and more “cents,” too — than the vast majority of analysts and advisers. Over the years, he’s developed a series of rules of trading that he’s happy to share with us. As he says, ignore them at your peril. Here they are:
- Never, Ever, Under Any Circumstances, Add To A Losing Position. Not ever. Adding to a losing position is trading’s equivalent of driving while intoxicated. It will lead to ruin. Count on it.
- This Is Not A Business Of Buying Low And Selling High. It’s a business of buying high and selling higher. Strength tends to beget strength, and weakness, weakness.
- “Markets Can Remain Illogical Far Longer Than You Or I Can Remain Solvent” is a brilliant statement from good friend Gary Shilling. Illogic often reigns and markets are inefficient — despite what the academics try to tell us.
- Sell That Which Shows The Greatest Weakness; Buy That Which Shows The Greatest Strength. Metaphorically speaking, when bearish throw rocks into the weakest paper sack, for it will break the most easily. In bull markets, ride the strongest winds.
- Think Like A Fundamentalist, Trade Like A Technician. It is imperative that we understand the fundamentals driving a trade, and that we understand the market’s technicals as well. If the chart is not bullish, why buy?
- Understanding Psychology Is Usually More Important Than Understanding Economics. Simply put, “When they are cryin’, you should be buyin’. And when they are yellin’, you should be sellin’.”
- Bear Market Corrections Are More Violent And Far Swifter Than Bull Market Corrections. Why they are is still a mystery to us, but they are. Accept it and move on.
- Be Patient With Winning Trades; Be Enormously Impatient With Losing Trades. Remember, it is quite possible to make large sums of money if we are only “right” 30% of the time, as long as our losses are small and our profits are large.
- The Hard Trade Is The Right Trade. If it is easy to sell, don’t. And if it is easy to buy, don’t. Do the trade that is hard to do and that the crowd finds objectionable.
- Do More Of That Which Is Working And Less Of That Which Is Not. This works in life as well as in trading. Do the things that have been proven of merit. Add to winning trades, cut back or eliminate losing ones. If there is a “secret” to trading (and to life), this is it.
- There Is Never Just One Cockroach. Bad news about a stock is usually followed by more bad news. This continues until such a time as panic prevails and the weakest hands finally exit their positions.
- All Rules Are Meant To Be Broken. But very, very infrequently. Genius comes in knowing how truly infrequently one can do so and still prosper.
Thanks, Dennis. Every business day of the week, Dennis arises in the small hours of the morning and writes The Gartman Letter, a market commentary that many consider the best in the business. To learn more about it, check it out at www.thegartmanletter.com.