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Lessons from ten of the greatest trades of all time

I love MoneyWeek and read it avidly from cover to cover. In fact I recommend it to you. So it was with great interest that I saw in it this article by Matthew Partridge titled ‘Lessons from ten of the greatest trades of all time’. Matthew has written a book called ‘Super Investors’ and his article is a plug for the book of course.

Here are the ten lessons:

Lesson 1. Markets can overreact to events. Buying when everyone is panicking and prices are irrationally depressed can be very profitable.  David Ricardo 1815.

Lesson 2. Making profits from shorting is hard, as prices generally rise over time. Starting with small positions and scaling them up is a wise strategy. Jesse Livermore 1929.

Lesson 3. While it’s a good idea to stick to your strategy, it’s also wise to be flexible if the opportunity is compelling enough. Benjamin Graham 1948.

Lesson 4. It’s difficult to find a company that can consistently grow its sales over a,long period of time. If you can find such a firm, you should hold onto it. Philip Fisher 1955.

Lesson 5. Investing internationally is an excellent way to find new opportunities and to diversify. Local knowledge can help you greatly. John Templeton 1964.

Lesson 6. It’s important to keep an open mind and read information and opinions  that challenge your own views. Paul Samuelson 1970.

Lesson 7. You can learn a lot about a company’s potential by looking at the quality of its products, although you need to do in-depth research. Peter Lynch 1971.

Lesson 8. In technology most of your gains will come from a small number of investments – but it’s hard to tell what they are, so diversify. Eugene Kleiner and Tom Perkins 1976.

Lesson 9. Market perceptions of what is about to happen can have real world impacts, turning them into a self-fulfilling prophecy. George Soros 1992.

Lesson 10. Some of the best investment opportunities can come from companies and industries that have fallen out of favour, so don’t ignore these stocks. Neil Woodford 2000.

 

I think these are all good lessons. The difficulty that I have, however, is how to apply these lessons: One man’s opinion about a market overreacting to events, and buying stocks, is another man’s perceived opportunity to make money by shorting the market. What to do?

My feeling is that as an uninformed, lay investor, I need to have a system that I can apply to the markets that makes me take advantage of all of these lessons, by default. The system needs to:

  • Give me opportunity to benefit from the safety of asset diversification
  • Allow me to benefit from rises in prices
  • Protect me from market crashes
  • Be simple to operate, with black and white buy/sell signals.
  • Not be discretionary.

I believe that my trend-following, asset allocation investment system fulfills these criteria. If you would like to find out more about it click here. Here is a video of my opinion about the different asset classes this week: 

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