Winning on Wall Street

One of the benefits of being an active investor for over thirty years is the opportunity to become acquainted with many of the great investors of the past.

One of those who was the most influential to me as a young investor was the legendary Martin Zweig.

Zweig passed away over a decade ago, but for more than forty years, he was one of the titans of American investing.

Zweig was born in Cleveland, Ohio, in 1942 and attended my alma mater – the Wharton School of the University of Pennsylvania, graduating in 1964.

He began his career in the 1970s as an investment newsletter writer and became one of Wall Street's most successful and influential investors.

His pioneering book, "Winning on Wall Street," originally published in 1970, is one of the most influential books on investing ever written. We highly recommend it!

We recently came across a list of Zweig's Investing Rules that was distributed on the fixed-income trading desk of my former firm, Shearson Lehman Hutton.

Below is that list, along with some of our commentary…

1. “The trend is your friend, don’t fight the tape.”

This is one of the most popular sayings amongst technicians but also one of the most difficult for new investors to accept.

It feels intellectually much “sexier” to buy stocks when they are down and not when they are up.

Remember, though, what we often say—for a stock to go up +500% or +1,000%, it must first double, triple, or quadruple.

Buy strength and make it your friend.

2.  "If you buy for a reason and that reason is discounted or no longer valid, then sell!"

Our favorite saying is, "Plan the Trade, Trade the Plan."

This is Zweig’s version of that saying. We can't emphasize how important it is that if you make a trade, and the reason for making the trade changes, you must change along with the trade!

The worst thing an investor can do is rationalize a trade that is now going against them once the situation changes.

3. “Adapt to change.”

This is related to the point above, but we want to make a bigger point about the “plan” aspect of our favorite saying.

Putting together a trading or investing plan you know will succeed is essential. We emphasize doing the work and studying great investors like Zweig. It is also important that you figure out a plan that fits your particular personality.

After you have done that, you must also accept that the markets change over time, and you need to adapt to those changes.

The most obvious change is when we go from economic growth to a recession. This almost always results in a BEAR MARKET. Your trading plan must adapt to this economic change to remain successful.

4. “Don’t play all the time.”

This is our favorite saying from the entire list!

Our strongly held view is that you should be doing NOTHING 99% of the time.

SELECTIVITY empowers great trading and investing. Wait for a situation to set up fantastically, and don't force it.

The most powerful thing you can do as an investor is NOT doing anything.

5. “The market is not efficient but is still tough to beat.”

This is a close second in terms of being our favorite on the list.

Some argue that you can’t beat the market. We both know that is NOT true.

Beating the market and creating sustainable returns requires not only a great plan but also the discipline to stick with it.

Coming up with that plan and sticking with it both take a LOT of hard work!

You can beat the market, but it is not going to be easy!

Check out our latest episode on the HX Podcast!

HXPodcast Ep21: Market Update: The Economy, Jobs & The Yen Carry Trade

Wait, what just happened? The market saw a big nosedive last week based on a couple of factors.

This week Enrique unpacks recent events. He'll explain the "Yen carry" that was upset by rate changes in Japan, and look a little closer at the data in and around the recent jobs report.

The volatility index is through the roof. Is the sky really falling? We don't think so. Here's why, and what to do now in this week's HXPodcast.