(Not so) Golden Rules About Investing (& Not Investing)

After last week’s Rules frenzy, Cassandra Does Tokyo sent this in. Enjoy:

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Trolling the blogosphere, it seems to be the season for sharing one’s so-called Golden Rules of Investing. So here goes…

Cassandra’s 25-3/4 (or so) Tungsten-Filled Golden Rules

#25-3/4. Do as I do – not as I say – but do it without delay! (NB: 13F-HR’s are too late!)

#25-1/2. The trend is your friend….errrr….ummm…..except when its not.

#25-1/4. Whatever kind of metaphorical market animal you are (bull, coq, chicken, weasel, whatever), always remember that Pigs Get Slaughtered.

#25. Buy “The Best of Breed” companies…..unless they are priced at levels preceding the moment when Pigs Get Slaughtered, or when the trend is not your friend, or I am saying the opposite of what I am doing.

#24. NEVER short “Best of Breed” companies…except when Pigs Are Getting Systematically Slaughtered in other “Best of Breed” companies (but don’t get piggy puking out the pigs).

#23. Cut your losses short and let your winners ride – but not when pigs are getting slaughtered

#22. No one ever made a dime by panicking … unless apparently you’re following the previous rule #23 which says you should cut your losses short and let your winners ride.

#21. NEVER double-down (except when you have material non-public information and deep pockets) or if you’re Ed Thorp, or if you’re playing at The Martingale Room.

#20. “Systems” always stop working (Even if they DID actually work at one point). So forget about asking about their “system”: what you really want to know about is their Plans B&C for when it DOES stop working (and why they’re not using them NOW).

#19. Diversify to control risk – except if you are Eddie Lampert

#18. Don’t own too many names – unless you’re Ed Thorp or diversifying to control risk per the above rule

#17. Invest in what you know – unless you don’t know a whole lot about those things.

#16. Buy when others are (almost finished being) fearful.

#15. Buy when there is blood in the streets – but only after it has dried a little bit.

#14. But NEVER buy when the blood in the street is your own. (See rule #23 above)

#13. Never catch a falling knife (unless you know why it’s falling and/or approximately when it’s likely to stop). Catching a rather dull falling knife, however, is OK. (NB: IF you ignore this rule and try to catch the falling knife, and discover it is hazardous, and the street becomes stained with your blood, see rule #23 above).

#12. Leverage is poison! (unless you’re doing risk-parity and then it’s sorta kinda seems theoretically OK, but then again, maybe not just when yields are near zero and everyone else is doing risk-parity or has risk-off asset allocations and…)

#11. Cranking up risk in order to target return when vol is low is like smoking a cigarette out of your butt-hole – it’s just stupid.

#10-1/2. A great coder is worth at least six fraternity brothers.

#10. NEVER allocate money to anyone who feels the need to sum their aggregate number of years experience to some impressively large number.

#9. NEVER invest with anyone with an improbably-inflated CV. If he’s embellished his Starbucks-fetching experience while an intern into something rather more grandiose – imagine what he (and it will be an egotistical ‘He’) is capable of fabricating in regards to his investment strategy and performance!

#8. NEVER invest with an investment manager who buys and then increases positions in less-liquid securities at higher and higher prices (unless those prices are likely to be demonstratively requited by per share growth metrics)

#7. Be entirely skeptical of an investment manager who touts his self-professed superior research skills, proprietary channel checking methods, or interns sent to dumpster-dive to gain an edge. This is almost certainly first-class balderdash.

#6. If your broker says you’re his first call (and you believe him) you’re an idiot.
Always assume you are the LAST one to receive a “tip” or sell-side research. Prop Desks, friends&family of potentially anyone in the research publishing & distribution chain, SAC, MW all will have had the chance to act upon it before you.

#5-1/2. Oh and I forgot one which is the keystone to resolving the logic flaws at the root of the conflicting rules: “One man’s momentum is another man’s reversion….”

#5. If you pay an upfront load for the ‘privilege’ of investing in a fund, you’re an idiot.

#4. If you invest in a hedge fund with anything less than annual incentive-fee crystallization, you’re an idiot.

#3. The moment your Advisor, Letter-Writer, Investment Guru mentions “Hyperinflation” or “Government Conspiracy” – run away in the other direction as fast as you can.

#2-1/2. To catch a gopher, you’ve got to think like a gopher.

#2. NEVER subsidize losers with winners – unless you’re diversifying to control risk – where rule#23 will tell you to sell your losers and let your winners ride – unless the losers are “what you know” and therefore you SHOULD be investing in it – doubly-so if you have material non-public information, and especially if there is Blood In The Streets – unless of course it’s your own blood, in which case you should return to #23 and sell your losers – at least until tomorrow when you wake up and see that there is blood in the Street and you remember to be greedy when the others are fearful…

#1. Never listen to other peoples Golden Rules – particularly those filled with Tungsten.