The quote below was sent over last week and has to make the list of all time great stock market quotes. Before I get to it, let me say this:
Investing is a complicated topic. Our objective as a company is to help advisers and their investors simplify the complex. My colleagues have to hear me say the following 47 times a day – the only thing that matters is the size of your wins relative to the size of your losses.
Think about it – not many (tempted to say nobody here) can predict the movement of the market, much less the movement of an individual stock, with any more accuracy than they can predict the outcome of a coin toss. If the win rate hovers around 50% – you better be winning much bigger than you are losing.
We believe what’s going up usually continues to go up, and the stocks we seek are the ones making the most new highs – those typically make us the most money. We focus on probabilities and advocate a rules-based system to facilitate behavior. Perfection is not required. All that’s necessary is large wins and small losses. Pretty simple.
Next time a new fund, strategy, manager, or any investment crosses your desk – be sure the answer to this question is clear: Does it win bigger than it loses? Take the time to understanding the supporting evidence and remember – simple beats complex
Below is the quote –
“The absolute price of a stock is unimportant. It is the direction of price movement which counts. During major sustained advances in stock prices, which usually occupy from five to seven years of each decade, the investor can complacently hold a list of stocks which are currently unpredictable. He doesn’t worry about the top because he knows he is never going to sell at the top. He knows that the chances are overwhelming in favor of the assumption that he will get far better prices by waiting until after the top has passed and a probable reversal in trend can be identified than he will ever get by attempting to anticipate the top, and get out on the nose. In my own experience the largest profits we have ever taken have come from stocks purchased while they were making a new high in a market which was also momentarily expecting the top. As I have already pointed out the absolute price of a stock is unimportant. It is the direction of the price movement that counts. It is always probable, but never certain, that the direction of the price movement will continue. Soon after it reverses is time enough to sell. You should sell when you wish you had sold sooner, never when you think the top has arrived. That way you will never get the very best price – by hindsight your individual transaction will never look daring. But some of your profits will be large; and your losses should be quite small. That is all that is necessary for a satisfactory, enriching investment performance.”
. . . “Stock Market Profits Without Forecasting,” by Edgar S. Genstein