Saturday, April 23, 2011

Notes on Investing: Baruch and Lessons Learned, Part two

In part one of this review on one of the greatest investors, Bernard Baruch, titled “Notes on Investing: Baruch and Lessons Learned“, we looked at what he has learned from his own mistakes, errors that we all make and of which numerous books have been written in an attempt to correct our own investor and totally human fallibilities on the subject.

  • Someone once suggested that worrying is like a rocking chair – it’s something to do but doesn’t get you anywhere. But worrying about things you have control over – rather than those you don’t, consumes many investors as they attempt to gain some rest at the end of the day. Baruch believed that there is a “sleeping point” that investors, or the savviest ones, understand and if you have failed to reach this point, where you can simply lay your head down and get the rest you need, you should do as Baruch suggests and sell to that point.
  • Investing as a hobby is not investing. It is more dabbling. You are willing to lose money even as you think you can make some. Real investors embrace what they do as a full time task. Baruch suggested: “Because of the extreme challenge, one must commit full attention to it” to which he also added about those who do it part time or do so in a speculative manner, investing is “no different than trying to be a successful doctor or lawyer….you simply must devote yourself full time to the study of your craft.”
  • We are social animals by nature and because of that need to interact, be it in person or through the numerous online and offline media outlets, we look for opinions. Or better, we look for reassurance. Or even better than that, we look for something that we can glean, some tidbit that no one else has yet to uncover or capitalize on. Baruch boiled it down to one simple tenet and suggested that anyone doing any investing at all do so by “doing one’s own thinking”.
  • Someone once suggested that men invest and tend to dominate the investment world because they love the bravado of doing so. Brauch suggest taking that bravado out of the equation. In other words, no matter your gender, boasting is not what you should do – ever. He believed it was “best to trade alone.” Doing so from your home office or a laptop in a coffee shop is not what he had in mind when he coined this directive. Instead, it was a suggestion to research, analyze, and purchase with confidence. He wrote: “Most of the successful people I’ve known are the ones who do more listening than talking.”
  • This is pretty simple and also the focus of many books and reports: how does the economy impact what you do and how you should invest. Baruch believed that the markets were basically mirrors of the economic health, not movers. No reflection has ever taken a commanding role in where the one making the reflection needs to be. This skill is not as easily mastered as it is learned, through trial and error, time and nuance.
  • Baruch did what many average investors do not – and possibly should not. He traded both long and short. I didn’t say he bought on margin, borrowing someone else’s money to make trades. He understood the way the markets worked and embraced the flexibility of how the markets could be traded.
  • Simply stated: “there is no investment which does not involve some risk and is not something of a gamble.” Although numerous authors have suggested you can take the gamble out of the effort, in truth, it can’t be done. Instead Baruch offered that “what we can try to do perhaps is to come to a better understanding of how to reduce the element of risk in whatever we undertake.”
  • And most notably, diversification spreads an investor thin, making the person monitor too many fronts. Baruch thought it was “better to have a few stocks and to watch them carefully.”
  • Few of us structure our portfolio with cash on the sidelines. Baruch considered this an important facet of the process suggesting that a “good supply of cash on hand at all times in reserve is important”. Crashes happen, markets fall and opportunities happen and without cash on the sidelines, you will miss those opportunities.
Next up, in this part three of our look at the investor Bernard Baruch, we will look at his belief that seeking perfection in this one effort is really what you are looking for.
Paul Petillo is the managing editor of and a fellow Boomer

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