Investing & Trading Lessons

In what has now become an annual tradition, I would like to share some investing and trading lessons that members sent to me in the 2008 membership survey.

When members were asked "What would you say is the most important thing you've learned about investing and/or trading in 2007?" this is how members responded (some of these lessons are very good to remember in these conditions):

• Think more. Trade less

• Keep it simple and listen to the market

• What should happen does not always happen

• Even the smartest guys in the room make mistakes (negative hedge fund returns, credit markets, etc.)

• There is no rule that the market must act rationally

• The market doesn't necessary reflect true economic conditions otherwise the best traders would be economists

• Program trading is changing the market in significant ways

• If you can't articulate what your edge is, then you don't have one!

• Pick your spots. Avoid overtrading

• Plan for the worst so you know what to do when it happens

• The market is always right

• Don't try to predict the markets. Look at the current situation the markets are in and base your decision on that situation

• Most of the problems I have had are when I broke my own trading rules. (I said the same thing last year!)

• I must be comfortable with my own system or strategy. It must fit my life, my own strengths, and my time available. Copying someone else's approach just because it works for them probably won't work for me

• You must read the markets for what they are and not force what you think they should be doing

• I learned that if you work hard enough, one could improve his/her sense of market sentiment and can more effectively time the market

• Everyone has an opinion, but the only one that matters is yours

• The market will do its best to confound the majority

• If there is a perceived bubble, it is probably real and eventually there will be a correction

• Our leaders (central banks) have no control over the financial markets

• No one knows what is going to happen next. Do your "homework" is not realistic for most of us small investors

• You get out of the market exactly what you put into it. The harder I work, the luckier I get

• I have so much more to learn

• Trading well doesn't require always being "right" about the market

• Don't expect what worked before to always work in the future

• The markets are becoming more complex and dangerous due to vastly increased use of sophisticated derivative products and due to powerful computer-based trading methods used by large institutions and hedge funds

• No matter how hard you may try, you will never have 100% information on any stock

• It's OK to be wrong

• I have learned the importance of waiting for the fat pitch to deploy lots of capital (and using stop losses) rather then trying to grind out lots of trades by swinging at "non fat" pitches

• That the market is all about timing and managing your mistakes

• Learning how not to fight the tape is a harder lesson to learn than it seems

• In spite of all of the hype, you can lose a lot of money in options

• Here is what I've learned - I repeat the same mistakes every year

• Execution is everything. Just because you know what you should do doesn't mean you will do it

• Now I stick to the highest probability trades. For instance, a up-trending market leader, with an oversold RSI, at the 50-day, in a leading sector, is ripe for a bounce. So, with careful position sizing, I make those trades. I keep detailed spreadsheets, and notes, to keep track of my progress

• I have to survive if I ever hope to thrive

Many more lessons from 2007 will be shared this week! Hopefully you'll find them helpful as we navigate this market.

*  You may also find it also interesting to compare and contrast this year's lessons from those submitted a one year ago. See my Stock Market Lessons of 2006:  Part I, Part II, & Part III