Once I publish a blog post, I immediately start thinking of a topic for the next one. At this time last week, I decided to focus today’s blog on the concept of “trading turnover” – that is, how long you hold something you bought, until you sell it. It seems that with the stock market on a four-year tear and the bond market threatening to fall apart at any moment, it is a great time for investors to prioritize the most basic investment rule: buy low / sell high. And while taxes are a consideration to some investors and many don’t want to be considered impatient, I think we are in an era where beating your chest over being a devout “buy and hold” investor has a very General Custer quality about it.
So that is the main message of this week’s blog. Now, I will devote the rest of it to a related topic which was taught to me by the greatest non-professional investor I ever knew: my father, Carl Isbitts, who passed away between my last blog post and this one. He introduced me to investing, particularly technical analysis, way back when I was 16 years old. 33 years later, my greatest investment hero is still able to provide us with some common-sense investing rules, which I asked him to write as a section of my 2006 book (Wall Street’s Bull and How to Bear It). Each is ingrained into the Sungarden investment process:
1. Never buy a security unless you believe the reward to risk ratio is at least 2:1 in your favor
2. You never know how high a security price will go, or how low. Don’t waste a lot of time with predictions
3. Stocks will almost always go down faster than they go up.
4. Have a target sale price for every purchase. Be prepared to sell at or near your target, or be prepared to revise your target if conditions change.
5. Don’t follow the crowd. They may lead you up but they will also make you complacent, which can cost you a ton of money in down markets.
6. In a bull market, even if you sell prematurely, another opportunity will arise elsewhere. Falling in love is for mating, not investments.
7. In a bear market, the odds are against you. Even the best-looking situation can turn on you. That’s why it is so important to have extreme flexibility in your investment process.
8. The greatest handicap to investing success is you – your emotions and attitudes. Keep those under control and you are way ahead of your peers.
As with investment market history itself, these rules and my dad have passed…but they will certainly not be forgotten..
© Sungarden Investment Research