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Shahla
Money Managing Guru
Joined: 13 Nov 2004
Posts: 3324
Cash Points ££ 126163.28
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 Posted: Thu Feb 22, 2007 6:39 pm Post subject: The Investor, Trader and Gambler - How to make Profits |
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What do an investor, a trader and a gambler have in common? As professionals, they have succeeded by following a strict set of rules. Actually, we all live our lives by following some set of rules. Some of us are more disciplined than others. Shortly after we are born we start to learn the rules of life. Some of these rules we had to learn the hard way, such when you fall down you can skin up your knees. Others we learned from our parents, like look both ways before crossing the street. Learning from our parents is easier, at least sometimes. However, we seem to do a better job remembering the ones we learned the hard way.
As investors we have a choice. We can learn the hard way and hopefully survive our lessons and not run out of money. Or we can learn from three very successful professionals.
The World's Greatest Investor
So what are the best rules from some of the most successful investors of all time? Let's start with Warren Buffett. Warren Buffett, “The Oracle of Omaha,” is considered by many as the greatest investor ever. He is also known for giving much of his $40 billion fortune to The Gates Foundation. Mr. Buffett is primarily a value investor that closely follows Benjamin Graham's investing philosophy after having worked at Mr. Graham's firm, Graham-Newman.
Mr. Buffett has several excellent investing rules. Many of them come from the Berkshire Hathaway annual reports, an excellent source for investing education. Here are three of Mr. Buffett's rules:
1. "Rule No.1: Never lose money. Rule No.2: Never forget rule No.1."
If you lose money on an investment, then it takes a much greater return to just break even, let alone make any money. Minimize your losses through good capital management and trailing stops. You use up too much time, money and mental capital sitting on a losing trade. Move on.
2. "The Stock Market is designed to transfer money from the Active to the Patient."
The best returns come from those who wait for the best opportunity to show it self before making a commitment. Those that chase the current hot stock are destined to loose more than they gain.
3. "The most important quality for an investor is temperament, not intellect.
You need a temperament that neither derives great pleasure from being with the crowd or against the crowd.” Independent thinking and confidence in what you believe is the right investing strategy is much more important than being the smartest person in the market. Most of the time the best opportunities are found when everyone else has given up on the stock market.
A Great Trader's Rules
I n the October 1989 issue of Futures, Dennis Gartman published 15 simple rules for trading. He is a successful trader having experienced the gamut of trading from winning big to almost losing everything. Currently, he publishes “The Gartman Letter”, a daily publication for experienced investors and institutions. Here are three of Mr. Gartman's best rules:
1. There is never one cockroach.
When you encounter a problem due to management malfeasance then expect many more will follow. Bad news begets bad news. Should you encounter any hint of this kind of problem, then avoid the stock and sell any you currently own.
2. In a bull market only be long. In a bear market only be short.
Approximately 60% of a stock's move is based on the overall move of the market. So go with the trend when investing or trading. As they say “The trend is your friend.”
3. Do not make a trade until the fundamentals and technical agree.
Fundamentals help to find quality companies that are selling a discounted price. Technical analysis helps to determine when to buy, the exit target and the trailing stop. One way to use fundamental analysis is to focus on Return on Capital (quality company) and Earnings Yield (selling a relatively low price) as defined by The Little Book That Beats the Market . The chart of a stock coupled with selling volume help to identify the best entry points, where to exit and how to protect your money from undue loss. This approach takes advantage of the strengths of the two basic ways to analyze stocks for investing and trading.
The Gambler
http://www.marketoracle.co.uk/Article368.html |
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