Salient to Investors:

Jack Schwager writes:

As long as no one cares about it, there is no trend.

All markets look liquid during the bubble but illiquidity after the bubble ends matters more.

Markets tend to overdiscount the uncertainty related to identified risks and underdiscount risks not yet identified.

Low-quality names outperform early in the cycle, and high-quality names outperform late in the cycle.

Entry size is often more important than entry price because the larger the position, the greater the danger that trading decisions will be driven by fear rather than by judgment and experience.

When you hit a losing streak, you can’t turn the situation around by trying harder. Better liquidate positions and regain objectivity.

Watching every tick often leads to selling good positions prematurely and overtrading.

In strong uptrends, bad news counts for nothing. But a break in the trend reminds people of losing money in equities, and people start looking at the fundamentals.

Never buy low-beta stocks. If the market falls 40 percent for macro reasons, they will drop 20 percent and if the market goes up 50 percent, they will go up only 10 percent.

An extremely oversold stock is usually an acute phenomenon that lasts for only a few weeks, whereas stocks can remain overbought for a very long time.

If you are in a trade you don’t understand, you will only sell when the price action scares you. Most of the time price action scares you, it is a buying opportunity, not a selling indicator.

Let winners run and cut losers.

There is no high for a concept stock. It is always better to be long before they have already moved a lot than to try to guess where to go short.

In a bull market, prices open lower and then rise for the rest of the day. In a bear market, they open higher and go down for the rest of the day. At the end of a bull market, prices start opening up higher. In the first half hour, only the fools or people who are very smart trade.

Stocks suddenly no longer dropping on bad news is a positive sign.

To avoid value traps, stay away from companies that can’t grow their cash flow and increase intrinsic value.

Buffett says that time is the enemy of the poor business and the friend of the great business.

Over the short term, perhaps as long as 2 or 3 years, value investing may not always work. The fact that value investing sometimes doesn’t work over short periods,  is why it continues to work over the long term.

Institutionalization of the market has reduced the window of time managers have to outperform. They can’t wait 2 years for an investment to work because their institutional and individual clients won’t wait.

The best-performing mutual fund for the decade the market was flat was 18 percent a year, on average, yet the average investor in that fund lost 8 percent because every time the fund did well, investors piled in, and every time it underperformed, investors redeemed.

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