Study investing legends to speed up your learning curve
Studying successful investors, both past and present, is a strategic approach that new investors can use to accelerate their learning curve and minimize amateur mistakes in the stock market. Instead of learning the hard way through losing money, investors can gain valuable insights into effective market navigation and practices through other people’s experiences. Although the following quotes are pieces of wisdom gleaned from investors from different eras with different backgrounds and strategies, I think you’d be surprised how many of them share similar beliefs and techniques about market trends. To make this proactive learning approach easier to digest, I’ve compiled some of my favorite trend-following quotes from investing legends like Ed Seykota, George Soros, and Paul Tudor Jones. In addition, I have provided interpretations of these quotes for easier understanding.
Lesson #1: Job #1 = Risk Management
“If you diversify, control your risk and go with the trend, it should just work.” ~ Larry Hite
“I have two basic rules for winning in trading and in life: 1. If you don’t bet, you can’t win. 2. If you lose all your chips, you cannot bet.” ~ Larry Hite
“Where you want to be is always in control, never wanting, always trading and always first and foremost defending you are a **. This is why most people lose money as investors or individual traders, because they are not focusing on losing money. They need to focus on the money they have at risk and how much capital is at risk in every single investment they have. If everyone spends 90% of their time on that, not 90% of their time on money ideas about how much money they’re going to make, then they’re going to be incredibly successful investors.” ~ Paul Tudor Jones
Interpretation: While amateur investors focus on finding the next hot stock tip and making money, the investing legends I’ve studied see themselves as risk managers first and investors second. Investing is a marathon, not a sprint. Just one poor risk management decision can blow up your account and set you back years. Always hyper-focus at the risk of destruction! Buy uptrends, sell downtrends and cut your losses.
Lesson #2: Be “dumb”, follow the Prize
“In order of importance to me are 1) the long-term trend 2) the current chart pattern 3) choosing a good place to buy or sell” ~ Ed Seykota
“The trend is your friend until the end when it bends.” ~ Ed Seykota
“There are no good or bad stocks, only rising and falling stocks.” ~ Nicholas Tarvas
“Successful traders always follow the line of least resistance. Follow the trend. The trend is your friend.” ~ Jesse Livermore
Interpretation: Amateur investors often complicate their market analysis with complicated and unclear macro analysis. However, before diving into the underlying weeds, investors can avoid a lot of headaches by simply identifying the trend and connecting with it. Remember, only the price is paid, not the opinions.
Lesson #3: Avoid predicting the future: Interpret the present instead
“Trend following is an exercise in observing and responding to the ever-present moment.” ~ Ed Seykota
“To predict the market is to gamble. To be patient and react only when the market gives the signal is to speculate.” ~ Jesse Livermore
“If investing is fun, if you’re having fun, you’re probably not making money. Good investing is boring.” ~ George Soros
Interpretation: Wall Street media and investment banks are obsessed with bold market calls and predictions. The benefit of such practice is the fame that is achieved if one’s prediction is correct. However, in real-world trading, the point is that most market predictions are inaccurate. For example, in 2023, many Wall Street analysts were bearish, just as the market bottomed out. Instead of predicting market movements, investment legends interpret price action in the present, leaving their egos at the door.
Lesson #4: Trends tend to stick, patience pays off
“It’s one of the great paradoxes of the stock market that what looks too high usually goes up and what looks too low usually goes down.” ~ William O’Neil
“Once a trend is established, it tends to continue and run its full course.” ~ George Soros
“A good trend following system will keep you in the market until there is evidence that the trend has changed.” ~ Richard Dennis
“Men who can both be right and sit tight are unusual. I found it one of the hardest things to learn. But only after a stock trader has firmly understood this can he make money.” ~ Jesse Livermore
Interpretation: Big money on Wall Street is made by latching on to a trend and riding it as long as possible. Often, market trends persist much longer than most investors anticipate. In a world full of hyperactivity and short attention spans, it’s the patient investors who end up on top.
Lesson #5: Avoid Bear Markets: Learn the art of doing nothing
“I stay out of a bear market and leave such outstanding stocks to those who don’t mind risking their money against the market trend.” ~ Nicholas Tarvas
“There’s a time to go long, a time to go short, and a time to go fishing.” ~ Jesse Livermore
Interpretation: Just as landing in a winning trend is valuable, learning to stay out of bear markets and avoid fighting the trend is just as important. Being able to observe market action without having to be active is a superpower.
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