File Notes: What Successful Investing Is

I come to kill you

—Leo Durocher, baseball player

Durocher played the game the only way it should be played. He also said, “Nice guys finish last.” That’s you if you think you can win in the stock market without the killer instinct. The game is stacked against ninety eight percent of everyone who ever owned a share of stock because neither they nor their advisors (who have no skin in the game) have the foggiest idea what the two percent who end up with all the dough are doing.

Investing is gambling. If you don’t know this, you’re dead right now. Puggy Pearson, two-time world poker Champion said, “Ain’t only three things to gambling:   Knowing the 60/40 end of a proposition, money management, and knowing yourself.” Same applies to its sister sport, stock market investing.

Odds-On Betting

I had a lady client buy some stock one time. It went up fifty percent in a fortnight. “When you’re making money fast, you might not be making money long,” I said. “Would you like to take a profit?” She told me yes, and then told me this was what she wanted to do. “I only want to buy and then sell when it goes up fifty percent,” she says. “Call me when I can do that again.” I never called her again.

Making money buying low and selling high in the stock market is the chanciest thing there is. Suckers (most investors) don’t understand this. The worst are the buy-and-hold types,. “I’m a lo-o-o-ng term investor,” they’ll say. Fabulous. Had you been fully invested in 1929, you would wait until 1956 just to get even, sucker.

Stocks should be bought for dividends they pay. If they don’t pay dividends, don’t buy the damn things. Avoid them also if the dividends are not good. Wait until they are good. Nobody invested in the market today knows this, or they wouldn’t be there.

Stocks move from undervalue to over. From panic collapse to euphoric stupidity. When they get to one extreme, they will turn and go the other way until they reach the opposite. The way to get an edge is to look over your shoulder and see which extreme happened last. When the last extreme was a bubble like today, you want to avoid stocks because they are headed down, with intermittent rallies, until they reach the opposite extreme. At the bottom you can do what winners do. You can buy and get great dividends and have a good chance of seeing the dividends go up over time. If they do, the value will also go up.

If you’re invested in the market today, you either don’t know this, or you just like stepping out in rush hour traffic.

Protecting Your Stake

You’re gonna be wrong sometimes. Everyone makes mistakes. George Soros is a world class investor because he knows he is gonna be wrong. Decide before you plunge how much you are willing to lose before the market proves you wrong. Place a stop that much below your entry point. If you can’t do this, you will be a loser.

Self Knowledge

You are a human being, right? That means you are a natural bad investor. People naturally want to invest when they feel good about investing, which is after stocks have gone up a ton. That’ll be wrong, of course. You’ll hate stocks after you’ve seen humongous losses in the market, so you’ll not want anything to do with them just when good investors are placing their bets.

Knowing this about ourselves, we design a strategy for when to get  in and when to get out before we ante up. Then comes the discipline to adhere to the strategy, which is nothing more than an agreement with ourselves to follow the market and act according to what we have written down.

Some would call this fortitude. Maybe so. Thomas Cromwell, in an aside to Henry VIII, said, “Fortitude, Milord, is not bravery in battle. Fortitude is fixity of purpose, endurance, and the ability to live with that which constrains us. ” ***

That’s about it, Milords and Miladies,



*** Hat tip to David Fisher for the quote




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