Friday, April 22, 2011

A Lesson about Investing - Part One

Perhaps you think it is too late to learn how to invest. The act, for most of us is filled with frustrating moments that are hinged on losses. But if you listen to what famed investor Bernard Baruch suggests, losing is only part of the experience and the best teacher available.

Baruch refused to join any trading house, hence his moniker the "Lone Wolf of Wall Street". He made a fortune by 30 - investing in sugar - and served as not only a park bench statesman but an advisor to presidents. He was a man of rules and when it comes to investing, too few of us possess such stringent parameters.

  • Baruch believed that act of losing was actually the best teacher. While we mostly abhor the idea that we can actually lose invested money, he embraced the experience. He admits to not having enough knowledge in the beginning to separate himself from his cohorts, starting out as most traders do - losing lots of money.  Experience and eventually discipline taught him: "You have to lose money in order to better yourself."
  • While most of think that timing and the ability to invest are keys to success, he thought that real success in the market takes time and money. Why then do we harbor what Baruch suggested when he observed that "most people view the market as the place where the miracle of great and quick riches can be performed with little effort."
  • Baruch believed in simplicity. He thought that most people fail when the over-traded and held too many positions. This taught Baruch the lessons of going broke - which he did many times before he developed the discipline to succeed.
  • Investing is different than speculation. But those who consider themselves investors often blur those lines. In his opinion, asuccessful speculation is "a man who observes the future and acts before it occurs." Acting swiftly in the market is important.
  • Who you listen to can be blamed for what you do. And we all listen. Baruch admitted that after losing money from the recommendation of others, the facts were all that was needed. "One must search through a maze of complex and contradictory details to get to the significant facts.....Then he must be able to operate coldly, clearly, and skillfully on the basis of those facts." Speculation is not every man/woman's game and it is beyond the ability of most. So that leave the challenge for the successful speculator in learning "how to disentangle the cold hard facts from the rather warm feelings of the people dealing with the facts. If, as he suggested you do, " get all the facts, your judgment can be right; if you don't get all the facts, it can't be right."
  • The person that stares back at us in the mirror is not always honest. And without this honesty, he believed that you can expect to be wrong as many times as you are right. "If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he is wrong." Can you honestly suggest to that reflection that you will cut losses quickly? In his opinion, this is the most important trading rule.
  • Taking the time to think is something we believe we can not always afford. But it is one of the most profitable luxuries we can use. He suggested that, "During my eighty-seven years I have witnessed a whole succession of technological revolutions. But none of them has done away with the need for character in the individual or the ability to think."
Next up,  more from this investor on sleeping and self reliance.

Paul Petillo is the managing editor of and and a fellow Boomer.

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