What’s The Worst Rule Of Thumb Commonly Cited In The Market?

reminiscences of a stock operator pdf

What’s The Worst Rule Of Thumb Commonly Cited In The Market? by David Schawel, Economic Musings

Markets are complex and often investors search for short cuts or “rule of thumb” thinking to make it easier. Unfortunately this is not always the most prudent approach to investing and can result in mistakes. Yesterday on Twitter, I asked what’s the worst rule of thumb commonly cited in the market.  Here are some responses:

@HFBondsTrader  sell in may…

@EquityNYC  Pigs get slaughtered

@BarbarianCap  stocks trade at 15 P/E

@montoyan   maximum pain

@modestproposal1  the crowd is always wrong

@zshrier  Your bond allocation should = your age.

@DavidTaggart  Just do what WarrenB does

@BluegrassCap CAPE

@CBHolsinger  with the dividend, I am getting paid to wait i

@AlexRubalcava  No one goes broke taking a profit

@LadyFOHF   ‘it’s the algos’

@JFinDallas   “It’s down so much it has to bounce.”

@DumbLuckCapital  Gross margins are somehow indicative of business quality

@Royal_Arse  active > passive.

@DumbLuckCapital  ok if the a Tiger Cubs are doing it

@BarbarianCap   stocks always go up in the long run (actually diversified, price momentum market indexes have do so for ~1% of human history)

@EquityNYC  Diversification is the only free lunch

@DumbLuckCapital  Leverage is bad

@hmeisler  TINA

@MicroFundy   “getting paid to wait”

@The_Analyst   #x is cheap (expensive). Pick your multiple (if not level), it’s almost always wrong or at least tunnel-vision view

@GeorgeManiereg  Hold your nose and #BTFD

@MicroFundy   risk = volatility

@VincePagano    @delangedotcom   “cash on the sidelines”

@BluegrassCap  market cap to GDP

@PScatterpatter   “this stock has valuation support.”

@DumbLuckCapital   PEG ratio of 1 or higher somehow means something good, even though 1 is an arbitrarily convenient cutoff signifying nothing.

@BrattleStCap   assuming “the market has this one wrong” when the market is actually dead-on the vast majority of the time

@Valuetrap13  That a company is not a value because its P/E is too high, which ignores tons of factors

@TheStalwart  “hope is not a strategy“

@spiegema   to that end…’you have to be contrarian to make money’

@EquityNYC   “value” = low P/E, P/B, EV/EBITDA

@LadyFOHF   “More sellers than buyers” Or vice versa.

@BrokenBanker  consensus is wrong

@kit_lowe  That move was related to a physical deal…

@ArbCowboy  default rates are at a historic low, we’re in the sweet spot, anything on CNBC, follow the smart money, everyone’s doing it

@JodyShenn  Just use 15 CPR for the pricing speed?

@chigrl   explaining every up move with “short covering”

@aneep   if you liked it 40, you should love it at 30.

@HaidiLun   Citi’s “It’s not a bubble until it doubles” call this week on China

@EdBorgato  Viewing a stock at a discount to market as cheap and one at a premium as expensive rather than valuing it on absolute basis.

@ParHedge   “Only price pays”

@awealthofcs  stocks are riskier than bonds

@michaelsantoli   That it’s rigged.

@JBoorman  “you’ll never go broke taking a profit” (you will if u don’t take losses even quicker)

@oknotsomuch   buyside know what they’re doing

@timothydh    chiding any and all “this time it’s different” arguments. It’s always different

@cleverpur  SOTP like no one else figured out the value of disparate businesses. $NUAN comes to mind as one of recent debacles of SOTP

@Vox_Magoo   contrarianism

[email protected]   anything Jesse Livermore (investor not blogger) related x 10^2

For exclusive info on hedge funds and the latest news from value investing world at only a few dollars a month check out ValueWalk Premium right here.

Multiple people interested? Check out our new corporate plan right here (We are currently offering a major discount)

About the Author

David Schawel, CFA, FSA
Currently work as a fixed income portfolio manager. Spent time in NYC in both investment banking and equity research. Current CFA charterholder.

Be the first to comment on "What’s The Worst Rule Of Thumb Commonly Cited In The Market?"

Leave a comment