Learning From Trading Master Gerald Loeb
Gerald M. Loeb was born in 1899 and started investing in 1921. Loeb would read everything he could on trading, investing and economics. In 1923, Loeb learned a valuable lesson when he took a substantial loss of his overall trading capital. He learned, from that point on, to always cut losses short, meaning to only take small losses when the market goes against you.
Loeb was changed forever after the Wall Street Crash of 1929. He avoided personal loss during the crash, but it greatly affected his trading style. Loeb now believed that holding stocks for the long term was not a sound trading rule. The 1929 crash proved to him that holding onto stocks can have a terrible effect on your portfolio, when you ignore sell signals that the market is in trouble.
In 1935, Loeb wrote his typical book titled “The Battle for Investment Survival”. It was a big seller from the beginning and is filled with superb trading gems. He updated his typical book in 1957, and again in 1965. In 1971, Loeb published “The Battle for Market Profits” as a follow up to his original book. Loeb also wrote columns for The Wall Street Journal, Barron’s and Investor Magazine.
Loeb noted that “Some people almost always make money in the stock market”. It is obvious that proper trading knowledge equals success in the marketplace. Loeb described knowledge as the “Ability to interpret information marketwise”.
Loeb understood and implemented proper trading psychology. He stated that “One must acquire the ability to control personal emotions or fear of loss, or greed for a larger profit, which affects most people’s decisions and are very costly”. Never underestimate the importance of trading psychology. It is usually what separates the fairly good trader from a true master.
The golden rule of cutting your losses short is well described by Loeb. He stated that “Losses must always be cut. They must be cut quickly, long before they become of any financial consequences”. “Cutting losses is the one and only rule of the markets that can be taught with the assurance that it is always the correct thing to do”.
Other important observations by Loeb included “The dominant factor in securing market profits lies in sensing the general trend”. This is very true since about 75% of all stocks follow the general trend of the market. Loeb believed that diversification is a crutch for ignorance. He stated “The greatest safety lies in putting all your eggs in one basket and watching that basket”. I totally agree. You should only trade the very best opportunities, with as many factors as possible in your favor.
I highly recommend reading “The Battle for Investment Survival”. It is easily one of the top five trading or investing books ever written. Study trading legends such as Gerald Loeb. Learn their methods and principles. Implement what you learn into your own trading. The results will be amazing.