Trading Rules

Our trading rules provide the framework for our methodology.

  • You don't have to be fully invested all the time - Cash is a great place to be if the market is not providing compelling opportunities. It's always preferable being out of the market wishing that you were in, than in the market wishing you were out.
  • Actively control risk - Always know your exit strategy before entering any position. If your reason for entering the position is no longer valid, get out. You can be right less than half the time as long as your losses are small and your profits are large.
  • The market is illogical and inefficient - It is more a study of mass psychology than of economics. The market represents the collective wisdom—and ignorance—of its participants. Don't argue with it, because it can stay illogical longer than you can remain solvent.
  • Only accept small losses - Avoid big losses at all costs. Remember the best way to win is to avoid losing—a 50% loss takes a 100% gain just to get back to even.
  • Don't fear short term underperformance - There will always be periods when your performance falls behind the market. Primarily concern yourself with outperforming the market over longer term market cycles where it carries much more weight.
  • Stay disciplined and emotionally detached - Avoid emotion at all times and approach the markets pragmatically. Have no loyalty to your stocks—save it for your family, your clients, your team, and your dog.
  • Stay Flexible - Trade like a mercenary guerrilla. When you realize you're on the losing side of the market, be ready to change sides. Be ready to break the rules if the circumstances demand it.