Notes on Investing: Baruch and Lessons Learned, Part three

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 anattempt to correct our own investor and totally human fallibilities on the subject. In part two, we looked at, among other things, the art of investing and getting a good night’s sleep.

• I can’t tell you how many times I get told that having several projects in the works is multi-tasking. It is not and Baruch more or less felt the same way about what and how to focus. His belief that traders tried to be too many different things at once, concentrate on too many things at the same time and in the end try and parse all of that information in something worth investing in, something profitable, was futile. If you are going to be an investor, you will need to, in his opinion do “one thing at a time, perfect it, and do it well.”
• In the days before behavioral finance took hold, in the days before efficient markets were thought to exist, value investors were trying to teach people how to invest.  They knew that that more you knew about the business you invested in, the better your understanding of the risks such an investment posed. To incur a loss in Baruch’s experiences as well as from what he witnessed in his cohorts, suggested that “they [knew] too little about the company’s management, earnings, prospects, and possibility for future growth.”  And Baruch, also guilty in the early days of investment career, fell into the same trap as many investor still do today.  ”They tend to trade beyond their financial capital capacity.”
• Baruch also knew that companies were dynamic entities and need to change over time to survive. It was how they changed that matter. “Successful speculation requires staying on top of changes in industries and companies that either create new industries or improve on existing industries.” These improvements needed to come with some chance of success. Unlike the speculation during the Internet bubble, where products were scarce and promises of profits abundant, the businesses you invest in need to have something tangible in place before they start exporting the next new thing. He believed that “The majority of your profits will come from these two…..The shrewdest traders throughout history all adapted the skill of reactionary change, as the market constantly presents new and different opportunities.”
• In recent years, the study of our emotional involvement has taken over for some previous thoughts on how we trade. And Baruch recognized these flaws early on, was able to tamp down his demons and become successful. It is no easy feat. He remarked, almost in passing: “Without control over your emotions, there is very little chance for profitable success in the stock market.”
• In the current atmosphere of the media and what seems to be instantaneous reactions to every detail of news, one thing has never changed. In the discussion about which wags the dog, it is not the markets that do the damage, but the reaction to the economic factors at play. “The market,” he suggested,  ”does not cause economic cycles but merely reflects them and the judgments of what traders believe business and the future will be like.”
• He believed in buy low sell high but also believed that no one could actually do it. “I made my money by selling too soon.” Market axioms aside, timing is not possible.
• perhaps one of his greatest observations of investor foibles involved when and why investors bought and sold. “It is much harder to sell stocks correctly than to buy them correctly.” Further suggesting, quite possibly from his park bench view of the world going past, that a “stock went up, the average investor would hold because he wants more gains – he’s exhibiting greed. If the stock declines, he also holds on and hopes the stock will come back so he can at least sell and break even – he’s hoping against hope.”
• Sitting, staring a a screen while you invest doesn’t make someone who loses any less a liar. What it does do is completely removes the blame from being laid at the feet of someone else. You invest and if you don’t do well, you have no one to blame. “Whatever failures I have known, whatever errors I have committed, whatever follies I have witnessed in private and public life have been the consequence of action without thought.”
• Baruch did not think that anyone was capable of predicting. But we do and we listen to folks who suggest that one this news or that, the market will go higher. They don’t know. You don’t know. To which he suggested that “Every man has a right to his opinion, but no man has a right to be wrong in his facts.”
• Once agin, Baruch is right on this point. But this is no easy task and I wonder if this is what Ben Graham meant when he said that there isn’t an investor in all of us, only in some of us. Baruch pointed out that the key to successful investing hinged on control: “Only as you do know yourself can your brain serve you as a sharp and efficient tool. Know your own failings, passions, and prejudices so you can separate them from what you see.”
• Baruch was haunted by his mistakes and took numerous hours to reflect on those missteps. We, on the other hand, beleiev we should stay in the game, or get back on the horse. Baruch knew that only by going on a sort of self-induced recess would he be able to understand where he’d been, the wrong turn he’d made and why he did what he did. Do you do the same? Are you willing to take money off the table to reflect on how well you did – or didn’t? If you knew, as Baruch knew all too well that “The main purpose of the stock market is to make fools of as many men as possible”, why would continue to fight a force that only thoughtful reflection and recollection will help you overcome?

Successful investing is a fleeting, almost elusive thing. Seems as though there are millions of books and websites offering something, some rope to grasp, when it comes to investing. I even offer a few of my own. In the end, it will come down to how well you do and recognizing that if you don’t do well, you should push yourself away from the table. Investing is not for all of us. And at the same time, it is. We still need to invest for retirement. But using individual stocks is not the way most of us should pursue it.

Paul Petillo is the Managing Editor of Target2025.com/BlueCollarDollar.com

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.

Retirement Planning and the Lessons we can Learn for those Who Know

Retirement planning is a process. It is also investing. 

Perhaps you think it is too late to learn how to invest. The act, for most of us is filled with frustrating moments that are hinged on losses. But if you listen to what famed investor Bernard Baruch suggests, losing is only part of the experience and the best teacher available.

Baruch refused to join any trading house, hence his moniker the "Lone Wolf of Wall Street". He made a fortune by 30 - investing in sugar - and served as not only a park bench statesman but an advisor to presidents. He was a man of rules and when it comes to investing, too few of us possess such stringent parameters.

• Baruch believed that act of losing was actually the best teacher. While we mostly abhor the idea that we can actually lose invested money, he embraced the experience. He admits to not having enough knowledge in the beginning to separate himself from his cohorts, starting out as most traders do - losing lots of money.  Experience and eventually discipline taught him: "You have to lose money in order to better yourself."
• While most of think that timing and the ability to invest are keys to success, he thought that real success in the market takes time and money. Why then do we harbor what Baruch suggested when he observed that "most people view the market as the place where the miracle of great and quick riches can be performed with little effort."
• Baruch believed in simplicity. He thought that most people fail when the over-traded and held too many positions. This taught Baruch the lessons of going broke - which he did many times before he developed the discipline to succeed.
• Investing is different than speculation. But those who consider themselves investors often blur those lines. In his opinion, asuccessful speculation is "a man who observes the future and acts before it occurs." Acting swiftly in the market is important.
• Who you listen to can be blamed for what you do. And we all listen. Baruch admitted that after losing money from the recommendation of others, the facts were all that was needed. "One must search through a maze of complex and contradictory details to get to the significant facts.....Then he must be able to operate coldly, clearly, and skillfully on the basis of those facts." Speculation is not every man/woman's game and it is beyond the ability of most. So that leave the challenge for the successful speculator in learning "how to disentangle the cold hard facts from the rather warm feelings of the people dealing with the facts. If, as he suggested you do, " get all the facts, your judgment can be right; if you don't get all the facts, it can't be right."
• The person that stares back at us in the mirror is not always honest. And without this honesty, he believed that you can expect to be wrong as many times as you are right. "If a speculator is correct half of the time, he is hitting a good average. Even being right 3 or 4 times out of 10 should yield a person a fortune if he has the sense to cut his losses quickly on the ventures where he is wrong." Can you honestly suggest to that reflection that you will cut losses quickly? In his opinion, this is the most important trading rule.
• Taking the time to think is something we believe we can not always afford. But it is one of the most profitable luxuries we can use. He suggested that, "During my eighty-seven years I have witnessed a whole succession of technological revolutions. But none of them has done away with the need for character in the individual or the ability to think."

Next up,  more from this investor on sleeping and self reliance.

Paul Petillo is the managing editor of Target2025.com and BlueCollarDollar.com