· Be emotionally detached. Do not gamble the money you cannot afford to lose, especially for retirees. Use stops and trailing stops for rising stocks to protect your portfolio. Do not use stops on thinly-traded stocks and/or after-hour trading that can be manipulated easily. My friend’s friend died due to too many worries when the market was down. The market finally recovered but he did not.
· Learn from the history of your trades but never look back emotionally. Some trades could be just luck or bad luck, and you do not want them as lessons. You need a trade book. I turned my trade book into investing books, and I do not recommend doing so; the returns so far are less than the hourly wage at McDonald’s plus all the bad reactions.
· Do not be jealous. Before 2000, a lot of value investors started shorting the tech stocks. Many were jealous of the young fund managers making over 50% in a year on tech stocks. Hence, they followed them and lost big when the tech stocks collapsed. History repeated itself in trading bitcoins.
It is the herd mentality. It works to have better protection in following the herd, but not in investing. You could make good profits by one step ahead of the herd. Death Cross and Golden Cross help us to time the market. To illustrate, Death Cross tells us to exit the market. If it turns out to be a false signal, Golden Cross tells us to return the market. Usually you do not lose anything, except the tax consequences in the taxable accounts and the commission is free from most major brokers.
· Avoid risky investments and/or investments you do not understand such as Bitcoin.
· Do not follow gurus blindly. Many gurus made big, but lost it all. Examples abound. Follow the gurus that have good track records from both the bull and bear markets. If you are a long-term investor, do not follow a short-term guru.
· Adept your strategy to the current market as the market changes all the time. There is no ‘evergreen’ strategy.
As in August, 2020, the poor economy does not affect the market a bit. It is due to excessive printing of money, which would cause high inflation (commodities could be a good consideration for investing). Most likely the bad effects will come, but no one identifies when it will happen. I believe the market cannot sustain making high heights especially after the election. We’re also running out of cash to further participate in this overvalued market. Stick with what you believe in the market; I bet that it works in the long run.
· Be disciplined. As of early 2022, I made good profits by buying when the market plunged and selling when the market surged. It had been working fine. I stopped in early May, 2022 due to the huge loss of the general market. I missed out several profit potentials due to fears. However, I do not regret it as the market could head lower.
· The successful traders’ winning trades were much larger than their losing trades. Even with a low winning percentage such as winning 30% of trades, many still come out ahead. How? You stop out on losers and let the winners rise with trailing stops.
Even with all bets equal, you can make a lot of money with a 55% winning percentage. We have been trained not to make mistakes in life. However, it is OK to make mistakes in investing. By not investing you do not make investing mistakes, but inflation would eat up your investments. Our financial system punishes us for not taking risks.
· You can be an investor (long term) and a trader (short term) at the same time.
· Do not take profits too early but use trailing stops to protect our profits.
· Consider total return. The dividend lovers want to buy more shares when the share price plunges as the dividend yield rises. It is a wrong concept. Some of the losers could go to zero and most likely the dividends could be reduced.
· When you have a stock with a huge loss such as 50%, consider whether it can turn around and the trend. “Never sell, and never lose” is irrational.
· Confirmation bias. If you are in the technology field, you have a tendency to buy tech stocks. Many just read the positives about the stocks in their field, but not consider the stock appreciation potential and fundamentals. Many only invest on Blue Chips as they know about the companies and/or their products.
· Diversify, but not over-diversify. When a sector is favorable, most likely you find stocks in this sector. It is true in late 2021 and early 2022 for the energy sector and commodities. The investing question is will the trend continue.
· If you have too much cash and the market is in uptrend, evaluate and buy ETFs; you may not have time to research stocks unless you have a buy list.
· A related YouTube link.
https://www.youtube.com/watch?v=MGglyvc8d58
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The above is from my book
Investing Lessons
Successes and Plunders
Available from Amazon.com.
