Stock Market Lessons: Part I

As the saying goes, learning how to trade successfully has a very high tuition rate. Few endeavors can challenge you the way the market does on a consistent day-to-day, week-by-week, and year-by-year basis. And, no matter how smart you may be or what system you develop to beat the market, past returns offer no guarantee. If anything, I've learned that the hard way.

No matter how long you've been trading or investing, we all can learn new things about the market and ourselves. It is also true the lessons we learn the hard way in the stock market always seem to make the biggest impact. That's why books, websites, seminars, etc. on trading will never replace battle-hardened experience. Unless you're making those same mistakes first hand, the lessons from those mistakes out of context won't really be that helpful.

With that said, I still continue to be impressed with the insight and knowledge of those who read this website and I'm privileged to share the journey with you. As it turns out, many of the lessons you've learned over the past year are lessons many of us have learned many times. In the 2007 membership survey, I asked the following question: "What did you learn from your best and worst trade or investment in 2006?" Here's part one of three (the rest will be posted next week) detailing the answers I received in response. I think you'll find them interesting.

Stock Market Lessons:

• Timing the trade is key


• Add to winning positions


• Don't be afraid to pick up oversold merchandise when it goes on sale


• The trend really is your friend


• Hold on to a climbing stock even if Wall Street is screaming a sell


• Focus - watch a few investments closely and learn their patterns


• Let the profits run and adjust stops up


• You need buy cheap and accept the volatility


• A good stock will run longer than imagined


• Always stick with your gut


• If I work hard I will achieve more winners than losers


• Look for the leaders, buy the leaders, and stay with the leaders


• When you see a high probability trade you can swing a big bat as long as you stick to your discipline


• The fundamentals don't lie


• Slow and steady wins the race


• There are only a few stocks that really worth going after at any one time


• Don't trade for the thrill of trading


• Pay attention to commitment of trader reports


• Trade less - earn more


• Don't be afraid to go against the popular trends


• Patience is a virtue


• Once I decided to follow the numbers rather than my personal "feelings," I was able to start making successful trades again


• Pick best of breed


• Dividends pay off


• Must "know" the particular behavior of a stock


• Trust my system regardless of my feelings


• Pick one stock/sector and learn it well


• Don't be a bag holder (i.e. overstay your welcome)


• Read beyond the headline and think


• Valuation is always subjective


• Sometimes luck is better than skill


• Doing well is incompatible with limited time available


• Know your entry and exit points prior to investing


• Selling at the price at which you would no longer purchase the stock is a good philosophy


• Keep your stops tight when a stock looks to be topping


• Be in touch with where the money flows


• That it is fun to make money


• Being timid is a recipe for underperformance


• You need an edge to beat the street


• Discipline and patience are not four-letter words