We previously published Art Hurpichs’ Market Truisms and Axioms back in 2011. Art is a CMT with Day Hagan Asset Management, and he returns with an updated set of Stock Market Rules to Remember.
As you are reading this, we are in the process of moving our “youngest” to Virginia, as he prepares for life on his own. One of my parting words was “Experience is gained by learning from your own mistakes; wisdom is gained by learning from the mistakes of others…”
Consistent with this and as we move into the last week of 2013 and approach 2014, I am reflecting on the lessons learned over a 30-year time period on Wall Street. While many of the insights shown below are personal experiences, and some insights were gleaned from others, they still bear repeating. I hope you enjoy reading the following insights as much as I did compiling them:
• Technical analysis is a windsock, not a crystal ball. It is a skill that improves with experience and study. Always be a student, there is always someone smarter than you!
• “Thou Shall Not Trade Against the Trend.”
• Let volatility work in your favor, not against you.
• Watch what our “Politicos” do, not say.
• Markets tend to regress to the mean over time.
• Emotions can be the enemy of the trader and investor, as fear and greed play an important part of one’s decision making process.
• Portfolios heavy with underperforming stocks rarely outperform the stock market!
• Even the best looking chart can fall apart for no apparent reason. Thus, never fall in love with a position but instead remain vigilant in managing risk and expectations. Use volume as a confirming guidepost.
• When trading, if a stock doesn’t perform as expected within a short time period, either close it out or tighten your stop-loss point.
• As long as a stock is acting right and the market is “in-gear,” don’t be in a hurry to take a profit on the whole position, scale out instead.
• Never let a profitable trade turn into a loss and never let an initial trading position turn into a long-term one because it is at a loss.
• It’s not the stocks that you sell that go higher that matters, it’s the stocks you don’t sell which go lower, that do.
• Don’t think you can consistently buy at the bottom nor sell at the top. This can rarely be consistently done.
• Don’t buy a stock simply because it has had a big decline from its high and is now a “better value;” wait for the market to recognize “value” first.
• Don’t average trading losses, meaning don’t put “good money” after “bad.”
• Your odds of success improve when you buy stocks when the technical pattern confirms the fundamental opinion.
• We can’t control the stock market. The very best we can do is to try to understand what the stock market is trying to tell us. As I like to say, “Overweight Statistical Probability. Underweight Emotion!”
• Understanding mass psychology is just as important as understanding fundamentals and economics.
• When investing, remain objective. Don’t have a preconceived idea or prejudice. Said another way, “the great names in our business … the Paul Tudor Joneses; the Steve Cohens; the Andy Halls; the George Soros’…all have this same trait: the ability to shift on a dime when the shifting time comes.”
• Any dead fish can go with the flow. Yet it takes a strong fish to swim against the flow. In other words, what seems “hard” at the time is usually, over time, right.
• Don’t make investment or trading decisions based on tips. Tips are something you leave for good service.
• Where there is smoke, there is fire – bad news is usually not a one-time event, more usually follows.
• To the best of your ability, try to keep your priorities in-line. Don’t let the “greed factor” that Wall Street can generate outweigh other, and just as important, areas of your life. Balance the physical, mental, spiritual, relational, and financial needs of life.
Finally, I want to offer a heart-felt “thank you” to those who are clients. We value your trust and support. To those who are not clients, we welcome the opportunity to speak with you of how we can be of assistance.
Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management