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Trading & Investing Is Nothing More Than Psychology, Just Ask Warren Buffett

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Mark Douglas worked with traders for many years and is one of the greatest authors of trading psychology of our time. The book that put him on the map was 'Trading in the Zone' which was released in 2000. Some quotes from the book that could help any failing / successful investor/trader include:

  • No man ever reached excellence in any one art or profession without having passed through the slow and painful process of study and preparation

  • We need to be rigid in our rules so that we gain a sense of self-trust that can, and will always, protect us in an environment that has few, if any, boundaries.

Warren Buffett is the one of the most famous and greatest investors of all time. And Warren too could of wrote a book or many books on trading psychology too.

  • “Rule No. 1 is never lose money. Rule No. 2 is never forget Rule No. 1.”

Stop losses are one of the most effective tools to use to abide. A stop loss (is risk management and capital preservation) is the single most underrated tool that will determine your destiny as a trader/investor. In general terms, traders/investors like to get out of profitable trades/investments quickly and like to hold on to their losing trades/investments for longer periods of time in the hope they will bounce back in the future. This bias in behavioral finance is termed as "fear of loss." Stop losses can protect trades from becoming investments and/or investments from becoming headaches.

  • “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”

Simply put, buy low and sell high. When investors are greedy and push the price of an asset too high, Buffett becomes fearful, because a market plunge may soon follow. And when investors run the other way when an asset's price gets crushed, Buffett becomes more interested because the asset is now on sale.

A few years ago at a dinner, Trey Lockerbie, founder and CEO of kombucha company Better Booch, met billionaire Warren Buffett. He took the opportunity to ask him a few questions about investing.

Buffett — widely regarded as the best investor alive — has used the same strategy of value investing taught by Graham for decades. So Buffett suggested that Lockerbie reread Graham’s books and focus on the chapters about the psychology of investing, Lockerbie said.

Source

Books by Graham

  • “Security Analysis”

  • “Intelligent Investor”

Books by Goodman (aka Smith)

  • “The Money Game”

  • “Supermoney”

!

The Intelligent Investor, written by Benjamin Graham, was first published in 1948. The book explains to readers numerous techniques on how to best utilize value investing concepts and strategies in the stock market to earn high profits. It is often said that Benjamin Graham "probably had the greatest forecasting skills of all the investors he ever consulted with."

The primary focus of this book is on learning how to become an "intelligent" investor. This is achieved through Graham's emphasis on determining a firm understanding of the concept of risk, and learning not to be overly influenced by too much "gut feeling."

Some of the ideas presented in the book also applies to other areas of investing. While most of the content in the book is presented in charts and graphs, Graham includes many case studies throughout his book to illustrate important points. For example, one case study relates the success of a particular margin strategy to the purchase of a particular company stock at a certain price point in the future. These case studies are helpful for investors who are either new to the stock market or are still learning how to be an "Intelligent Investor."

Intelligent Investor is one of those classics and should be on every trader's/investor's bookshelf.

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