The Traders Journal

The 10 Key Investing Lessons From Two Decades Of Teaching (1999 - 2019)

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After 20 years of teaching at over 200 continuing education classes, dozens of seminars and conferences and many other events, I've seen, heard, read, and watched it all. Witnessing 5,000 students over these years, I could write another book on the thousands of observations I've made about those attributes most necessary to successfully manage your money. But in this blog, I've condensed my insights down to the most critical top ten. The caveat here? This list is not all-encompassing, but if you can embrace these ten axioms, you'll be well on your way.

Axiom #1: KNOW THY SELF 

If you are incapable of being brutally honest with yourself — as in acknowledging that the biggest risk to your financial well-being is actually yourself — then you'll often be screaming into your pillow. I've found that keeping a personal "Traders Journal" is the single best tool to get into a winning investment mindset and learn to understand your personal roadblocks and demons. Hence, the official name of this blog that I started writing back in 2012. I liken the ethos of a successful investor to that of a winning entrepreneur. Preparing beforehand for multiple stormy scenarios is mandatory. Call it extravagant preparation. You don't wait for the ballroom to clear out during the chaos of a market correction to address the reality of climate change. You use your personal Traders Journal to address your issues and your strategic reactions BEFORE the storms hit. As Warren Buffett said, "It's only when the tide goes out that we learn who's been swimming naked!"

Further Reading...

Axiom #2: SET GOALS AND SAVE MORE

If you can convince yourself of the magic of compounding and can play the long game, you'll discover what Warren Buffett coined the "8th wonder of the world". If you aren't motivated by clear long term personal goals, you won't save enough money. Compounding works its magic best for those who save more. I realize this is very hard for the average person, but there are no average investors. Thank God for enforced savings such as Social Security. It's automatic and works in the background to require you to save. Let's be candid. With life expectancies growing and with Social Security likely to be underfunded in the future, most people need to become supersavers on their own with catch-up strategies starting today. The alternative is not pretty — a retirement crisis with millions of destitute individuals.

Further Reading...

Axiom #3: DISCIPLINE AND COMMITMENT

It's always shocking to me when certain "professionals" take one of my seminars and say something like "I've got three hours — teach me all you know about investing." Really? Let's do a barter deal — then you can teach me how to be a dentist in the next three hours! Far too many people want to take the elevator. The correct answer is TAKE THE STAIRS.

Ever notice on a cruise ship how the heavy-set folks always take the elevators and the fit ones are always climbing the stairs? It helps if you get truly engaged. Take classes, join an investment club or the AAII, come to investor meetups. Do whatever it takes to develop some passion for your portfolio. Make it a hobby. Make it fun. No one else will care about your assets as much as you. I guarantee that if you give it just a bit of weekly mindshare on a consistent basis, you'll discover within yourself quiet investing super-powers.

Further Reading...

Axiom #4: TOOLS AND RESOURCES MATTER!

I'll be the first to lecture investors that fees and expenses matter and should be scrutinized very carefully. Having said that, there is a baseline dollar investment that one must be willing to make to support their future financial prosperity. In our book, Tensile Trading, this is really what Stage 2 – "The Business of Investing" – is all about. Don't scrimp on your tools, all the way down to the hard goods. You need a good computer with a large screen and printer, plus an effective working desk and comfortable chair. Likewise, subscriptions such as StockCharts.com, Morningstar and cloud-based portfolio management websites are basic and a must. Finally, don't overlook the wonderful free resources your brokerage house offers. In fact, this is why I'd urge you to have multiple brokerage accounts. Warning: don't let yourself get overwhelmed, however, with too many tools and resources. Learn to focus on your tool kit.

Further Reading...

Axiom #5: MACRO AND MICRO INVESTING FRAMEWORKS

I absolutely believe that successful investing is not that difficult if you are willing to allocate some personal bandwidth to the exercise. But remember that it's in Wall Street's self-serving interest to convince you that investing is very complex and to make you think you are incapable of managing your money yourself. So here's my straightforward investing ecosystem. Start with a MACRO investing roadmap. The best one out there that I've ever found is — surprise — our Tensile Trading: The 10 Stages of Stock Market Mastery book. The most frequent comment that Grayson and I hear from our readers is their surprise that Buying doesn't come until Stage 7 of the book — well after we cover six other stages. That's correct. The first six stages provide the essential foundations you need before buying anything. Remember the elevator versus stairs analogy.

Then there's your MICRO investing blueprint. This is where you make your equity trains run on time. It's all about focusing on the process and not the outcome. Over the long term, executing your process consistently will drive profitable outcomes. If you focus on profits first, your process will fail you. The blueprint, for example, is the manner in which you organize and populate all your ChartLists. This becomes your process. Following it will generate profits. If you want to take the elevator in this one instance, instead of hiking the stairs, it's okay to download the ChartPack which will give you an immense leg up.  

Axiom #6: METHODOLOGY

Think of this like a big canister into which you feed all your potential equities and from which your personal "formulator" then spits out attractive candidates and discards the rest as garbage. I wrote this blog back in 2014 about William O'Neil's CAN SLIM methodology — one of the most successful and transparent formulators in existence. I myself have three separate formulators in my toolbox. One each for stocks, ETFs, and mutual funds. Whatever methodology you choose is fine, just don't leave home without it!

Axiom #7: EMBRACE PROBABILITIES

This often requires some inner recalibration, but teaching yourself to trust and believe in probabilities has many benefits. The two biggest benefits are these:

a) Knowing probabilities reduces personal stress and heartburn associated with investing.

b) By consistently deploying specific probability enhancers and only investing in high probability candidates with specific attributes, your percentage of winning trades will increase.

In other words, there is no such thing as a 100% probability for any certain trade. But there are different trades with clearly higher probabilities. By executing only high-probability trades and passing on the lower-probability trades — doing this consistently over time — your positive bottom line will reflect and reward this discipline. If you need detailed specifics and examples, refer to our book.

Further Reading...

Axiom #8: PROFITS COME FROM KNOWING WHAT IS HAPPENING — NOT WHY

 Most investors are highly educated people who have been trained to ask "why". Engineers, accountants, doctors, lawyers, etc. The assumption is that if you know why, you'll do the right thing. But this doesn't work in the stock market. If you wait to find out why, you'll be the last one to leave the party. Investing is all about understanding how people behave with money. It doesn't matter what they say or why they say it — it matters what they do. 

As investors, we simply want to see if they are voting with their money as buyers or as sellers. Think of your charts as a weighing machine. All of this is reflected in the price and volume charts of an equity. I refer to technical analysis as reality investing. It gives us a 360-degree view of what is actually happening. Simply put, I don't know why the dog is wagging its tail, only that the tail is wagging. Often, you only discover why something happened until weeks or months later.

For me, what's behind the curtain doesn't matter. I make money by focusing on what's happening on stage in front of the curtains.

Further Reading...

Axiom #9: ASSET ALLOCATION

Warren Buffett's biggest strength is that he's proven to be a brilliant asset allocator. His superior long term record is not the result of his ability to outperform in up markets. Rather it's due to his losing less in down markets. Many academic studies have shown that about 90% of diversified portfolios superior results are directly attributable to asset allocation decisions and not individual equity picks. You should build a portfolio to bend but not to break.

Your doctor will tell you one secret to a long life is the "rainbow diet" — eating colorful fruits and vegetables. I'm here to tell you that the same applies to your investing. Rainbow portfolios with carefully allocated asset classes will weather all market cycles and thereby result in a long healthy financial life. This is done by selecting an assortment of asset classes that are not highly correlated. In our book, we present 59 different asset classes and show correlations for each class to the S&P 500. 

Personally, I subscribe to a variation of John Bogle's "Core and Explore" approach to asset allocation. I add a third category which I call Super Explore where I go for a few moonshots — but with limited exposure just to keep life interesting.

Further Study...

Axiom #10: ABILITY TO EMBRACE CHANGE

A "buy and hold" strategy — or what I call fossilized investing — is dead. It's as scary as the old cliche about a visitor saying "I'm from the government and I'm here to help you." Investing your money requires some portion of each of the previous nine essentials in this blog. The mission is never complete. It's never over. You must maintain your monitoring disciplines and to some degree an action orientation. It's your money and you must accept the appropriate role as its steward.

Further Reading...


So, there you have it! My 20-year career of teaching investments wrapped up in the ten most important axioms. As you take time to reflect during this holiday season and head into the new year with your resolutions for what to do better in 2020, I hope these lessons can inspire you to achieve more with your personal finances and your investing. My wish for you, my friends, is nothing more than peak financial prosperity in the new year and beyond.


Trade well; trade with discipline!

Gatis Roze, MBA, CMT

StockMarketMastery.com

Trade well; trade with discipline!

Gatis Roze, MBA, CMT

StockMarketMastery.com

Gatis Roze
About the author: , MBA, CMT, is a veteran full-time stock market investor who has traded his own account since 1989 unburdened by the distraction of clients. He holds an MBA from the Stanford Graduate School of Business, is a past president of the Technical Securities Analysts Association (TSAA), and is a Chartered Market Technician (CMT). After several successful entrepreneurial business ventures, Gatis retired in his early 40s to focus on investing in the financial markets. With consistent success as a stock market trader, he began teaching investments at the post-college level in 2000 and continues to do so today. Learn More
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