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John Engle
John Engle
Articles (304) 

Bernard Baruch’s 10 Commandments for Investors, Part 1

Even as markets change, some advice is evergreen

April 23, 2019

Few investors of the 20th century loom as large as Bernard Baruch. Yet, while Baruch rarely shied away from sharing his opinions on most topics, he was uncharacteristically quiet when it came to specific investment advice.

Eventually, Baruch did break his relative silence on the topic in his memoir, “My Own Story.” In addition to recounting a multitude of fascinating investment adventures, he also took the time to provide some general investment advice:

“Being so skeptical about the usefulness of advice, I have been reluctant to lay down any ‘rules’ or guidelines on how to invest or speculate wisely. Still, there are a number of things I have learned from my own experience which might be worth listing for those who are able to muster the necessary self-discipline.”

In his memoir, Baruch offered 10 pieces of advice to investors. He would probably scoff at the idea of these thoughts being labeled the investing equivalent of the Ten Commandments, but each is a gem that every serious investor must understand.

Don’t speculate unless you can make it a full-time job

While the definition of speculation has undoubtedly changed since Baruch’s day, his point here holds value for virtually any active market participant. Whether you are a deep-value investor, event-driven trader or anything else in between (or beyond), time, attention and effort are always needed.

You must pay close attention to your positions, follow new developments and always be ready to modify or update an investment thesis based on new data as it emerges. You need not make it a full-time job, necessarily. But you have to give it the time and attention of a serious business.

Beware of barbers, beauticians, waiters — of anyone — bringing gifts of "inside" information or "tips"

This is a truly timeless piece of advice, one that has been expressed a number of times over the years. Joseph Kennedy Sr. is reputed to have sold all of his stock holdings after being offered a “hot tip” by a shoeshiner.

The logic makes sense. One should always be wary of the sources of information. When these sorts of inside tips start flying from the mouths of ordinary folks on the street, things are not right with the market. At the same time, messengers unschooled in the art of securities analysis may garble the message in the retelling, so even a good initial tip might prove troublesome in the end.

Before you buy a security, find out everything you can about the company, its management and competitors, its earnings and possibilities for growth

We are often astounded by the frequency with which market players, traders and investors alike will leap into new positions without first conducting extensive due diligence. The fear of missing out can often overpower the rational senses, leading one to plunge into uncertain waters unprepared.

In Baruch’s day, market analysis was often challenging due to the limited nature of, and access to, data on companies and markets. Public companies were more opaque in the early 20th century, and they were considerably more prone to financial funny business. There was no internet through which to conduct due diligence.

If anything, we have the opposite situation today, with so much information updating in real-time that it is challenging to keep up. Still, the easy access to financials, analysis and commentary we all enjoy today ought to make us think harder about our investment decisions. Use these gifts, do not squander them!

Don’t try to buy at the bottom and sell at the top. This can’t be done — except by liars

The fundamental nature of market movements has not changed since the days Baruch stalked the halls of Wall Street. Catching falling knives still tends to leave one bloodied, a lesson almost every investor or trader learns eventually (and usually through painful experience).

Ultimately, trying to time the market is a fool’s errand. Precious few stock operators have accurately called a top or marked a bottom, and none have proven to possess the power to do so consistently. As investors, we must trust in our investment thesis and make allocations accordingly. Being on the right side over the long run is what matters, especially for value investors seeking securities they can hold for the long term.

Learn how to take your losses quickly and cleanly. Don’t expect to be right all the time. If you have made a mistake, cut your losses as quickly as possible

This is a critical lesson all investors must take to heart. An investment thesis, no matter how strong it seemed, may fall apart in the end. Too many investors hold onto losing positions in the hope things will somehow reverse in their favor. But if the fundamentals have changed, holding out hope for another reversal is unwise.

It may be true that you do not have to book a loss until you sell. But if you are holding an ailing security in order to avoid the reckoning of making the loss “real” via a sale, you are merely delaying the inevitable and allowing good money that might be invested profitably elsewhere to wallow in disgrace. Take the hit and move on. That is the only way forward.

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About the author:

John Engle
John Engle is president of Almington Capital - Merchant Bankers. John specializes in value and special situation strategies. He holds a bachelor's degree in economics from Trinity College Dublin and an MBA from the University of Oxford.

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