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Winning in the stock market requires more than just dumb luck or intuition. While these factors may play a role in the short-term, long-term stock market winners need an edge. In the context of the stock market, an edge refers to a trader’s ability to consistently make profitable trades over a long period. In other words, it is a competitive advantage that stacks the odds in the trader’s favor and ensures long-term profitability.
Develop an edge that fits you.
An edge on Wall Street can be achieved through various strategies including, fundamental analysis, technical analysis, and event-driven trading, to name a few. If you study the most successful investors, you will find that there are multiple ways to “skin the cat”. For example, Warren Buffett relies on value-oriented principles, while Jim Simons implements a highly complex, math-intensive, quantitative system.
Like finding a compatible partner in the relationship realm, successful stock traders must develop and implement a trading system that fits their unique personality. Regardless of the direction you decide to forge with your trading, some common-sense principles can help to drastically speed up the learning curve. Below are 5 common-sense principles (containing quotes from trading & investing legends) to remember when creating a trading system:
Trade with the trend: Trading legend Ed Seykota once proclaimed that “The trend is your friend until the end when it bends.” The only way to make a large profit in the stock market is to latch onto a trend and ride it for as long as possible before it inevitably reverses.
Surviving is job #1: In an interview with Tony Robbins, billionaire Paul Tudor Jones once said: My metric for everything I look at is the 200-day moving average of closing prices. I’ve seen too many things go to zero, stocks and commodities. The whole trick in investing is: “How do I keep from losing everything?”. If you use the 200-day moving average rule, then you get out. You play defense, and you get out.” Looking back at Tudor Jones’ trading history, it becomes evident that he listened to his own advice – Jones was able to profit handsomely from the “Black Monday” crash of 1987, which saw the S&P 500 Index drop 20% in a single day. In 2022, it would have also helped investors exit stocks and indexes that would get crushed, such as former high-flyers Zoom ((ZM - Free Report) ), the Ark Innovation ETF ((ARKK - Free Report) ), and the tech-heavy Nasdaq 100 ETF ((QQQ - Free Report) ) (pictured below).
Image Source: Zacks Investment Research
In the long-term, U.S. equities are a good bet: It’s no secret Warren Buffett is a believer in the American dream. Via Berkshire Hathaway, the “Oracle of Omaha” is a top holder of some of America’s leading companies, including Apple ((AAPL - Free Report) ), Bank of America ((BAC - Free Report) ), Chevron ((CVX - Free Report) ), Coca-Cola ((KO - Free Report) ), and American Express ((AXP - Free Report) ). In a 2021 interview, Buffett said, “In its brief 232 years of existence, there has been no incubator for unleashing human potential like America.” Though Buffett took on his massive AAPL position in 2016, there is no better proof of his statement than the mind-boggling performance of AAPL over the past 25 years (+67,500%!!).
Image Source: Zacks Investment Research
“Bubble” is not necessarily a bad word: Like in life, in the stock market, all good things eventually come to an end. After the internet bubble of 2000 popped, most investors soured on the term “bubble” and used it as a negative word. However, George Soros, one of the most successful and wealthy investors of all time, has a different perspective. He says, “When I see a bubble forming, I rush in to buy, adding fuel to the fire.”Though bubbles are often built on irrational exuberance, pure momentum, and emotion, investors miss out on potential life-changing money by avoiding them. As long as you have an exit plan if the price turns against you, bubbles can be very profitable. One of the most extreme examples is Qualcomm’s ((QCOM - Free Report) ) insane run during the internet bubble. In 1999, QCOM was up almost 2,600% for the year!
Image Source: Zacks Investment Research
Don’t overcomplicate investing: Stanley Druckenmiller is featured in Jack Schwager’s book “The New Market Wizards”. Druckenmiller boasts a 30+ year track record where he did not register a single losing year. One caption from the book is as follows. When I first started out, I did very thorough papers covering every aspect of a stock or industry. Before I could make the presentation to the stock selection committee, I first had to submit the paper to the director. I particularly remember the time I gave him my paper on the banking industry. I felt very proud of my work. However, he read through it and said, “This is useless. What makes the stock go up and down?” That comment acted as a spur. Thereafter, I focused my analysis on seeking to identify the factors that were strongly correlated to a stock’s price movement as opposed to looking at all the fundamentals. In other words, you do not have to know every in and out of every stock or the economy to be successful – focus your energy on the key driving factors and remove the clutter.
Bottom Line
In conclusion, stock traders possess a combination of skills, including discipline, patience, risk management, flexibility, focus, and common sense. These traits are not all innate but can be developed through practice, education, and experience. By cultivating these traits, traders can increase their chances of success in the stock market.
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5 Traits of Legendary Investors
What do consistent winners have in common?
Winning in the stock market requires more than just dumb luck or intuition. While these factors may play a role in the short-term, long-term stock market winners need an edge. In the context of the stock market, an edge refers to a trader’s ability to consistently make profitable trades over a long period. In other words, it is a competitive advantage that stacks the odds in the trader’s favor and ensures long-term profitability.
Develop an edge that fits you.
An edge on Wall Street can be achieved through various strategies including, fundamental analysis, technical analysis, and event-driven trading, to name a few. If you study the most successful investors, you will find that there are multiple ways to “skin the cat”. For example, Warren Buffett relies on value-oriented principles, while Jim Simons implements a highly complex, math-intensive, quantitative system.
Like finding a compatible partner in the relationship realm, successful stock traders must develop and implement a trading system that fits their unique personality. Regardless of the direction you decide to forge with your trading, some common-sense principles can help to drastically speed up the learning curve. Below are 5 common-sense principles (containing quotes from trading & investing legends) to remember when creating a trading system:
Trade with the trend: Trading legend Ed Seykota once proclaimed that “The trend is your friend until the end when it bends.” The only way to make a large profit in the stock market is to latch onto a trend and ride it for as long as possible before it inevitably reverses.
Surviving is job #1: In an interview with Tony Robbins, billionaire Paul Tudor Jones once said: My metric for everything I look at is the 200-day moving average of closing prices. I’ve seen too many things go to zero, stocks and commodities. The whole trick in investing is: “How do I keep from losing everything?”. If you use the 200-day moving average rule, then you get out. You play defense, and you get out.” Looking back at Tudor Jones’ trading history, it becomes evident that he listened to his own advice – Jones was able to profit handsomely from the “Black Monday” crash of 1987, which saw the S&P 500 Index drop 20% in a single day. In 2022, it would have also helped investors exit stocks and indexes that would get crushed, such as former high-flyers Zoom ((ZM - Free Report) ), the Ark Innovation ETF ((ARKK - Free Report) ), and the tech-heavy Nasdaq 100 ETF ((QQQ - Free Report) ) (pictured below).
Image Source: Zacks Investment Research
In the long-term, U.S. equities are a good bet: It’s no secret Warren Buffett is a believer in the American dream. Via Berkshire Hathaway, the “Oracle of Omaha” is a top holder of some of America’s leading companies, including Apple ((AAPL - Free Report) ), Bank of America ((BAC - Free Report) ), Chevron ((CVX - Free Report) ), Coca-Cola ((KO - Free Report) ), and American Express ((AXP - Free Report) ). In a 2021 interview, Buffett said, “In its brief 232 years of existence, there has been no incubator for unleashing human potential like America.” Though Buffett took on his massive AAPL position in 2016, there is no better proof of his statement than the mind-boggling performance of AAPL over the past 25 years (+67,500%!!).
Image Source: Zacks Investment Research
“Bubble” is not necessarily a bad word: Like in life, in the stock market, all good things eventually come to an end. After the internet bubble of 2000 popped, most investors soured on the term “bubble” and used it as a negative word. However, George Soros, one of the most successful and wealthy investors of all time, has a different perspective. He says, “When I see a bubble forming, I rush in to buy, adding fuel to the fire.” Though bubbles are often built on irrational exuberance, pure momentum, and emotion, investors miss out on potential life-changing money by avoiding them. As long as you have an exit plan if the price turns against you, bubbles can be very profitable. One of the most extreme examples is Qualcomm’s ((QCOM - Free Report) ) insane run during the internet bubble. In 1999, QCOM was up almost 2,600% for the year!
Image Source: Zacks Investment Research
Don’t overcomplicate investing: Stanley Druckenmiller is featured in Jack Schwager’s book “The New Market Wizards”. Druckenmiller boasts a 30+ year track record where he did not register a single losing year. One caption from the book is as follows. When I first started out, I did very thorough papers covering every aspect of a stock or industry. Before I could make the presentation to the stock selection committee, I first had to submit the paper to the director. I particularly remember the time I gave him my paper on the banking industry. I felt very proud of my work. However, he read through it and said, “This is useless. What makes the stock go up and down?” That comment acted as a spur. Thereafter, I focused my analysis on seeking to identify the factors that were strongly correlated to a stock’s price movement as opposed to looking at all the fundamentals. In other words, you do not have to know every in and out of every stock or the economy to be successful – focus your energy on the key driving factors and remove the clutter.
Bottom Line
In conclusion, stock traders possess a combination of skills, including discipline, patience, risk management, flexibility, focus, and common sense. These traits are not all innate but can be developed through practice, education, and experience. By cultivating these traits, traders can increase their chances of success in the stock market.