10 Investing Rules

Hat Tip to Barry Ritholz, I follow his blog like a madwoman in love with an ugly hairy Yoga-loving Godman. Neither of which is true. I couldn't care what Barry looks like unless he is a nice looking lady, which he isn't. But he is a smart guy and communicates lots of sense, which is why he will find mention in my blog a few times.

10 Investing Rules - Taken from Barry Ritholz's Big Picture Blog

An earlier comment stream led me to these ten ideas; ignore them at your own risk:

• Whether a premise is fundamentally true or false is irrelevant as to whether it is actionable. If enough fools believe something is so, it will impact the markets.

• Always be conscious of the cognizant biases and selective perceptions you bring to investing. Recognize the same bias in the crowd, the media, and Wall Street. Avoid the herding effect.

• After a a 55% market sell off, most of the terrible structural news that existed before the collapse is reflected in prices. (Let it go).

• You must acknowledge when the data gets stronger or weaker, regardless of your current market posture. Be skeptical, but not rigid.

• Variant perception is a rarity; Identifying the moment when the crowd figures out they are wrong is rarer still.

• Market Pros simply cannot afford to sit out a 75% rally; Individuals that miss that sort of move should reconsider their investment strategies immediately.

• Cheap markets can get cheaper; Expensive markets can get dearer.

• Every thing cycles: Recessions turn into recoveries; bull markets give rise to bear markets. Every rally that there ever was or there ever will be eventually ends. Adapt to this truism or lose all of your money.

• One of the hardest things to do in investing is to reverse your thinking. It is even more difficult to do after a certain approach has been successful for long time. The longer the period of successful thinking, the more importnat the reversal will be.

• The markets frequently diverge from the macro economic environment. This can be both long lasting and maddening; Your job is to be aware of how wide the gap between the two is.

For those of you fighting the tape, the data and the mere idea of a recovery, ignore the above at your own risk . . .

http://www.ritholtz.com/blog/2010/04/10-thoughts-on-psychology-valuations-adapative-investing/