Tuesday, October 02, 2012

My (Not so) Golden Rules About Investing (And Not Investing)

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.  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.


David Morris said...


kind regards

Charles Butler said...

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

Better still, buy when the blood in the streets is the dry blood that has been lying there for three or four weeks - reconstituted to look like new with a bit of humid prose.

Anonymous said...

Love rule 2.5

And I say, "Hey, Lama, hey, how about a little something, you know, for the effort, you know."

And he says, "Oh, uh, there won't be any money, but when you die, on your deathbed, you will receive total consciousness."

So I got that goin' for me, which is nice."

Jack Parsons said...

Only trade on information assymetry- except if it is insider information- if anyone knows how you got it.