#5 Beat the Market Pt. 5 - The Steps, Reminiscences of a Stock Operator, from the bottom, founder traps, unfortunate investing traits

Been a rough week in the markets eh?

It's hard not to be affected when you start seeing losses in your account. No matter what Buffett says about being greedy when others are fearful, it's scary.

If you're human there's no escaping that.

That's why I find it helps to have a rules-based systematic strategy that you allocate a good part of your capital to. It takes the emotion out of your decision-making. But you still have to run it, and sometimes the fear and second-guessing holds you back.

Just wanted to say that it's not easy. Investing is hard. And that's why few can do it well.

This week we're moving on to Part 5 of A Simple Strategy to Beat the Market (if you haven't done so, read Part 1, Part 2 and Part 3 and Part 4 first). We'll be sharing how the strategy works and the steps to follow!

Beat the Market (Part 5) - Putting the System to Work For You

In the previous parts we've looked at how we put together a market-beating systematic strategy with simple rules, and used a market regime filter to improve the risk-adjusted return. In this part we'll look at how you can actually implement this strategy in your portfolio.

NOTE: This is not financial advice. Results are hypothetical, do not indicate future results, and do not represent returns any investor actually attained. Please read the Disclaimer page for more information.

Reminiscences of a Stock Operator by Edwin Lefèvre (Investing Book Review)

Reminiscences of a Stock Operator by Edwin Lefèvre is the fictionalized story of one of the greatest speculators of all time, Jesse Livermore, who won and lost tens of millions of dollars (an astronomical sum at the time) in the stock and commodities markets during the early 1900s.

Reminiscences is chock full of timeless insights and wisdom into market behavior and trading psychology, and is essential reading for any trader or investor, regardless of style or philosophy.

Get the Annotated Edition by Jon. D Markman to understand the historical context of the companies, personalities and news events. With pictures and charts from that period, it brings the story to life in an immersive way. The foreword and Q&A with the legendary Paul Tudor Jones is also valuable.

Key Takeaways

  1. The speculator’s chief enemy is himself – his greed and fear, lack of confidence, indecision, and inability to sit tight.
  2. Do not argue or get angry with the stock market. The speculator’s job is to observe prices and conditions and to get on the right side of the market.
  3. Prices follow the “line of least resistance”. It is pointless to try and figure out a reason for a rise or fall.
  4. A speculator should average up and not average down.
  5. The key success factors to become a successful trader are a keen sense of observation, ability to learn from mistakes, and a solid grasp of mathematics (especially probability).

Intrigued? Read the full review and top highlights.

Worthwhile reads

Started From the Bottom

"Of all the things that I will take with me from the last year, it’s that the optimists usually win. Yes, there are many things wrong with the world, but the arc of history continues to bend toward progress and a better future for humanity. It’s easy to forget this when things look the bleakest, but it’s true." - Nick Maggiulli

The Founder Trap

"I know at least a couple of founders running successful, ten or hundred-million-dollar businesses, who are miserable. They don’t like the company anymore and aren’t inspired by their work, but they’re trapped in a cage of their own design. They can’t walk in and say “I quit” without the company falling apart, and they haven’t been able to replace themselves." - Nat Eliason

Unfortunate Investing Traits

"If markets never crashed they wouldn’t be risky. If they weren’t risky they’d get very expensive as all potential returns were wrung out. When markets are expensive they’re fragile. And when they’re fragile they crash." - Morgan Housel