1) Downward Average Your Investments? Never! Adding to losing positions in a bear market is like catching a falling knife. You may badly cut your private … capital.
2) Be Short or Neutral Your Investments. Long positions are for bull markets.
3) Bull markets create many winners. Bear markets create many losers and even the best investors, traders and research analysts may fall on their swords before the damage is complete. The bigger your ego while winning in a bull market, the greater your mauling during a bear market.
4) Buy sectors that show the greatest strength and sell sectors that show the greatest weakness
5) Choose investments based on fundamentals. Buy and sell those investments based on charts. Trade when the fundamentals and the technicals (charts) align.
6) KISS – simplify your trading system. BS baffles brains while simplicity reigns.
7) This is not rocket science, but remember Isaac Newton and gravity. It takes a lot of buying to lift a market and just a lack of buying to bring it crashing down to earth.
8) Rats love company. When a rat appears on the scene delivering bad news it usually means there is a nest of them on board. They will jump ship first, wait until they have panicked the weakest sailors into jumping ship, re-board and then sail off with your treasure into the sunset.
9) If you are winning keep doing what you are doing. If you start to lose be very impatient and fight complacency.
10) Understand and embrace the idea that at the moment of greatest greed lies heartache and at the moment of greatest fear lays opportunity. Be particularly vigilant at the break-even point of the two.
11) Do more of what works and less of what doesn’t. This also applies to general living.
12) ‘Sell in May and go away’, ‘when they’re cryin’ get to buyin’ … when they’re yellin’ get to sellin’, ‘3 days down get outa town’, ‘3 days up make a jump’ … ‘It’s goin’ to the moon’. Understand mass psychology and be wary of it, as for periods of time it trumps fundamentals and economics.
13) Avoid the, “I have a feeling the market has bottomed” game. Wait for the uptick. Buy higher than the lowest low, add to winning positions through upward averaging and sell higher. Most often strength begets further strength and weakness begets further weakness.
14) ‘Markets can remain illogical far longer than you or I can remain solvent’ – John Maynard Keynes. Learn to cope with irrational market behaviour.
15) Preserve your sanity. Mental capital trumps real capital.
16) Be aware that during down markets investors make wrong decisions 75% of the time. Market volatility causes investors to make rash decisions. Every day the market ends red 75% of the stocks have ended in red. Join the 25% of investors making the right decisions.
17) Don’t trust ratings systems or research analysts in a bear market. They are paid to talk up the market.
18) An average male grizzly bear weighs 225 kilos and the largest about 775 kilos. They can run 50 kph and bring you down faster than you would think. When attacked don’t be a hero and try to fight it. Better to play dead and hopefully just get bruised, but not eaten alive.
19) When you make small profits take them and move on.
20) Don’t buy any more positions on margin
21) Some bears hibernate for half the year … just resting before a good mauling.