14-05-05 10:45 Filed in: Investing
Here are 7 key quotes that summarize perhaps the most important principles of trading and investing.
- “I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful.” – Warren Buffett The key to successful trading is often to move against the crowd – backing off when everyone is pushing the markets higher, and buying back in when everyone else is running for the exits.
- “The stock market is filled with individuals who know the price of everything, but the value of nothing.” – Phillip Fisher Just because a stock is cheap doesn’t mean it has value equal to its price. Perhaps the company has high risk. If you are doing value investing make sure you are buying in when the stock’s value is greater than its price – no matter what its price might be.
“The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance.” – Ed Seykota Often the mark that separates the good day traders from the poor ones are that they are much more focused on the discipline of minimizing losses and getting out early – vs the newer trader who often is focused on potential gains, and ends up losing a lot of money.
“Know what you own, and know why you own it.” –Peter Lynch Don’t buy stocks just because they are popular in the news right now, or your friends are talking about them. Instead, do your own homework on the companies so that you know from the data why you are buying them.
“I believe the very best money is made at the market turns. Everyone says you get killed trying to pick tops and bottoms and you make all your money by playing the trend in the middle. Well for twelve years I have been missing the meat in the middle but I have made a lot of money at tops and bottoms.” – Paul Tudor Jones. Don’t get discouraged if you aren’t making a lot of money as the market simply flatlines for a while. Wait it out, and keep some dry powder for the market turns. I try to keep 10-20% in cash for precisely this reason – so when the fire sale happens, I’ll have money to invest.
- “The market can remain irrational longer than you can remain solvent” – John Maynard Keynes This is perhaps the most important quote in this list. We all get investment theses in our heads – such-and-such stock will go up because of a key chart crossover, or such-and-such company is cheap relative to its value – but we can’t hold on to those beliefs at all costs. The markets can ignore our “perfectly reasonable” viewpoints on what stocks ought to do for much longer than we can afford to continue to be invested in our viewpoint. If we hold on and hold on we’ll just keep losing more money. This quote goes with quote #3.
- “There is the plain fool who does the wrong thing at all times anywhere, but there is the Wall Street fool who thinks he must trade all the time.” – Jesse Livermore Just because you have money in your account and the markets are open doesn’t mean you need to be trading. Think, pause, and have a plan – including knowing when NOT to trade. Then be disciplined enough to stick to your plan.
Looking for an on-the-go tool to help you manage your investments? Try Stock TickerPicker for iOS.