The stock market has always attracted a disproportionate number of exceptional intellectuals and uniquely independent souls. By their nature, they are reluctant to live by the lessons of others and tend to be rule breakers instead of rule keepers. In his book Trading Rules: Strategies for Success, William Eng talks about the learning curve for these investors. As he says, “the smarter you are, the longer it takes to win.”
Economist Pierre Lemieux described self-enforcing lessons that are in each individual’s interest to obey. For example, once more than 50% of car operators drive on the right side of the road in a particular area, more and more drivers will notice that adapting to this behavior reduces their risk of an accident. Both the reluctant lesson learners and the rule breakers will soon realize that if you do otherwise, you will incur a very high cost.
Similarly, the stock market also has vital survival lessons –many so aptly articulated by Warren Buffett. Buffett’s basket of fundamental lessons is the pillar of investment survival – homilies such as spend wisely, focus on the long term, no one will care for your money as much as you do, and always sell losing stocks. The Internet is chock full of these “Buffettisms”. If you don’t have these survival basics down pat, get on the Web and start trolling. But rather than focus on stock market survival lessons, this blog instead concerns those self-imposed rules that are more often than not in one’s own interests. Stock market trading rules fall into this camp because they are all about gaining control of your investor self and mastering stock market moves.