Down through the years, Wall Street has evolved many useful "do's" and "don'ts," based upon accumulated experience and trial-and-error results of traders.
In developing this wisdom, we have drawn upon the time-tested methods and experience of outstandingly successful traders and investors. While we have sifted, analyzed and synthesized many theories and principles, we have constantly emphasized the practical side - the actual methods which have worked and made money in the past, and which can do likewise for you.
Some of the more important "Wall Street Axioms" and "Golden Rules of Wall Street" have been especially selected for this Forbes Stock Market Course. Also a highly useful Glossary of Wall Street Terms has been included.
Twenty-six Wall Street Axioms
1."External Vigilance is the Price of Safety."
The big, successful operators were devotees of "eternal vigilance." They watched the market constantly, religiously. Above all, they emphasized the sense of timing.
As Jay Gould, the famous speculator (who milked many corporation!) put it? "the perfect speculator must know when to come in; more important, he must know when to stay out; and most important, he must know when to get out once he is in!"
2. "A Good Investment is a Good Speculation, and if it is Not a Good Speculation, it
is Not Even a Safe Investment."
This is only basic common sense. Investors should be constantly on guard to avoid extreme and undue risks. "Speculation" definitely has its place, but there should always be some element of merit, of hope, to justify the speculative risk. Never enter a hopeless situation, because that isn't even a good "speculation."
3. "No Man Ever Makes Himself Poor by Taking Profits."
This was a favorite axiom of old Commodore Vanderbilt. It certainly paid off handsomely in his experience. The Commodore was fond of remarking that "paper profits can quickly turn into losses," Unless carefully supervised and acted on.
4. "The Market is Made by the Minds of Men. What the Minds of Men Have Made,
Your Mind Can Solve. The Problem Requires Study, Practice, Experiment,
Persistence, and Unlimited Patience."
As constantly emphasized through the Course, the psychological factor is all-important in the market. Stocks sell on the basis of what investors think of them at a given time. Above all, try to sense, to evaluate, investor psychology at all times.
5. "If You Do Not See The Way Clear, Do Nothing."
Daniel Drew, a colorful speculator of the 1880s, believed fervently in this principle. He used to say that unless the way looked clear, buying stocks in those circumstances "was like buying cows by candlelight."
6. "The Market Will Be Here Tomorrow."
Patience pays! Andrew Carnegie had special talents for "watching and waiting." He would calculate all his operations - whether in industry or in the stock market - but would bide his time until the "right moment." Even if you miss an opportunity today new ones are always developing in the marketplace.
7. "Always Have Some Resources Free for Bargains."
This is one great difference between the successful and unsuccessful traders. Baron Rothschild made it an iron-clad rule to keep a good part of his capital free for such bargains as occur from time to time. In this way, he was able to "buy when others are selling" ? so that he could later "sell when others are buying."
8. "If Your Stocks Worry You, Sell to the Sleeping Point."
When you can't sleep because of worry over your stocks, it means that you are too heavily invested. Under such circumstances, you should "sell to the sleeping point" - the point where you are no longer kept awake by stock worries. Sometimes, a complete withdrawal from the market for several weeks is an emotional tonic.
9. "No Grist Can Be Ground With Water That Has Run Past the Mill."
Forget your investment mistakes and the lost opportunities of the past. They are gone forever, plan your program now for the present and the future. We all err at one time or another. Forget those things that are past. Press ahead.
10. "Speculation Begins Where Certainty Ends."
Any investment, no matter how sound, has some element of risk. The "safest" investment, such as U.S. Government bonds, have the lowest risk factor. In that sense of the word, they are "certain." As you go down the scale of quality, the element of certainty diminishes, and risk increases proportionately.
"Speculation," in the best sense of the word, is the assumption of predetermined, calculated risk in the hope of obtaining a profit.
11. "Caution is the Father of Security."
The more careful you are, the better your chances of investment success. It is a matter of record that most of the money lost in the market is lost by careless amateurs, operating blindly and without an intelligent plan. "Be safe or be sorry" is one of Wall Street's soundest axioms.
12. "No One is Always Right, But Successful People Are More Often Right Than
You can take comfort in the knowledge that even the most astute traders have been wrong on occasion. But their over-all average has been good - they have been right most of the time. That is the quintessence of success in the stock market - to be right most of the time.
13. "Never Sell Stocks on Account of a Strike."
The logic underlying this rule is that strikes - no matter how serious - are temporary affairs. Sooner or later, they are settled. (Of course, a long strike can hurt.)
14. "Do Not Sell A Security, Which Has Long Been Inactive, Just as Soon as it
Begins to Move Forward."
Usually, a stock just starting such a move is "coming to life," and may enjoy a good advance for a while.
15. "Cut Your Losses Short and Let Your Profits Run."
This is only common sense applied to your investment. Losses happen, at times, even to the best investors, but the important thing is to keep them as small as possible. When you see losses accumulating, it's time to take remedial action. Admittedly, losses are bitter pills to take, but it's better to limit them somewhere along the line before they grow.
16. "Do Not Plunge Recklessly After One or More Successful Trades."
This is a great pitfall of the beginner. A few successful trades sometimes breed a feeling of invincibility, which almost always leads to disaster.
Despite their seeming swashbuckling and recklessness, most of the successful big operators were extremely cautious in their market planning and execution. They weren't "thrown" by the heady experience of a few successful market coups.
17. "Diversify Your Holdings".
"Don't put all your eggs in one basket!" The best illustration of this basic truth is found in the stock portfolios of the large estates and trust accounts. They show a broad diversification among many types of securities.
However, when trading, as opposed to investing, it's preferable to concentrate on just one situation - or a very few - rather than disperse energies too widely.
18. "Unless in a Position to Protect a Trade Against Extreme Possibilities, It is a
Good Rule Not to Trade at All."
In other words, protect yourself with "stop-loss" orders, so as not to be caught by a sudden reversal in the market. One should always prepare for the worst - for the unexpected but nonetheless possible reversals which can happen in any situation.
19. "Bulls Win; Bears Win; Hogs Get Slaughtered."
This is one of the soundest rules of Wall Street. Avarice has ruined more traders than any other fault. It?s well and good to make every dollar possible, but trying to squeeze for the ?last eighth? has caused many a trader to lose his timing altogether.
20. "The Market Seldom Does the Same Thing More Than Three Times in
It seldom makes the same "high" or same "low" more than three times in succession. Therefore, be constantly on the alert for "triple tops" and "triple bottoms."
21. "After A Long Rise, Place Stops Close To, But Under the Previous Week's
This rule was especially true in earlier bull markets. Whenever a stock decline under the previous week's low, it was usually the forerunner of a sharp decline and often indicated the end of the advance. This rule was excellent "safety insurance."
22. "Don't Stay Wrong Long."
Sooner or later, all traders make their share of mistakes in the market. But you can always rectify your error. If you're mistakenly bullish, turn bearish. Conversely, if you're a bear and are wrong, adjust yourself to the trend. Don't let pride, Stubbornness, or prejudice blind you if you have planned wrong. Learn how to change with the tide.
23. "The Mere Desire to Make Money Should Never be the Mainspring for
Speculative Actions, but Only When an Opportunity Exists."
This takes a great deal of discipline, but it's sound advice. No matter how much cash you have ready for investment, don't invest unless a clear opportunity exist. Opportunities are not long in developing in the market.
24. "Buy Only When the Outlook Warrants, Price Being Secondary."
Even a "low-priced' stock is not "cheap" if it won't go up. By the same token, even a "high-priced" stock is a purchase if it promises to move higher.
25. "The Market Always Does What it Should Do, But Not Always When."
Sometimes the market can be perplexingly tardy in its reaction to fundamental forces. But sooner or later it does what it's supposed to do. It calls for every resource of patience your command to wait for the scheduled event to materialize, but it's well worth the effort.
26. "Be Bullish in a Bull Market; Be Bearish in a Bear Market.
Do Not Be Either a Bull or a Bear All the Time."
Some stock traders suffer a great handicap - that of being chronically bullish or chronically bearish. This can be a most expensive trait, for it means being wrong about half of the time.
Learn to recognize the bull and bear signals and act accordingly.
Nine Golden Rules of Wall Street
1."Never Buy a Stock That Won?t Go Up a Bull Market. The Insiders are Out of
For some valid reason, the "informed" money is not buying that stock. The reason may not be apparent, but it exists nevertheless.
2. "Never Sell a Stock Short That Won?t Go Down in a Bear Market. The Insiders
Here, again, there is a compelling behind-the-scenes reason. Even when the facts are not clear, it's best not to "buck" the stock.
3."Sell the Stock Short That Won't Go Up in a Bull Market the Moment the
Market Turns to the Bear Side."
A stock that can't attract buying support when everything else is moving ahead must have something radically wrong with it. It, therefore, would be vulnerable in a bear market.
4."Buy the Stock That Won't Go Down in a Bear Market. It Will Probably Lead
the Market Turns to the Bear Side."
This is one of the best rules in Wall Street. It means that support is so strong that new buying will push it up when a bull phase reappears.
5."Don't Buy the "Sympathy" Stock. Many People Do, But It Is Not Often
Profitable. Buy the Stock That Is Going Up."
When the stock of XYZ Widget Corp, is active and climbing in price, and the stock of ABC Widget is not moving, don?t buy ABC just because it has a similar name. Stock do tend to move in industry groups, but something may be "cooking" at XYZ that has no bearing on ABC.
6."When A Bull Market Turns to Bear, Sell the Stock That Has Gone Up the most,
As It Will React the Most."
This may seem to be a contradiction to Rule No. 3 above, but it isn't. Actually, the stocks that have had the greatest percentage rise frequently have a greater percentage corrective decline when the tide turns.
7."Also Sell the Stock That Has Gone Up the Least. It Couldn't Go Up, Therefore,
Must Go Down."
This is in agreement with Rule No. 3. If the stock can't attract buyers - it frequently will attract sellers.
8."When a Bear Market Turns to Bull, Buy the Stock That Has Gone Down the
Most, and Also the Stock That Has Gone Down the Least."
This two principle are not opposed to each other. Instead they illustrate two extremes in the market. Stocks showing the greatest percentage declines are normally due for percentage gains. Stocks that have held up best have a reason for doing so, hence, are in a position to attract new support.
9."If a Stock is a Purchase or a Sale, Action Should Be Taken At Once. The
Market Does Not Consider Your Trade in Its Fluctuations."
In other words, if buying or selling is imperative, action should be taken at once. Such transactions should be made immediately "at the market."
Note that these "Golden Rules" are merely old, general rules of thumb. Each of these Rules could have an "other side of the coin."