Dad's Rules: Timeless Wisdom From a Fallen Investment Hero
Sungarden Investment Research
By Rob Isbitts
June 10, 2013
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 todayâ€™s blog on the concept of â€śtrading turnoverâ€ť â€“ 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 donâ€™t want to be considered impatient, I think we are in an era where beating your chest over being a devout â€śbuy and holdâ€ť investor has a very General Custer quality about it.
So that is the main message of this weekâ€™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 Streetâ€™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. Donâ€™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. Donâ€™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. Thatâ€™s why it is so important to have extreme flexibility in your investment process.
8. The greatest handicap to investing success is you â€“ 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 passedâ€¦but they will certainly not be forgotten..
(c) Sungarden Investment Research