Karl Arnold Belser
8 August 2016
| I wrote a summary of my Investment
Rules in 2011, which I adhere to as well as I can.
The Farnam Street post Mental Model: Bias from Envy and Jealousy reminds me again of the importance of my rule number one - Don't Be Greedy. Lao Tzu wrote that he who knows that enough is enough will also have enough. Similarly Seneca wrote that a person who is content with his lot, whatever it be, without wishing for what he has not will be happy. The idea is to avoid envy. Knowing when enough is enough mitigates against taking unwise risks.
I have learned how to minimize the endowment effect, i.e. falling in love with a particular security, by trading shares. I focus on low PE shares with a good dividend in businesses that I understand. I have developed the discipline to sell an issue if the PE gets too high or if the business climate changes.
My intention is to minimize my emotions as much as I can from my trading decisions. One way I do this is by having a large cash reserve so that no matter what the market does and how much money I loose in market fluctuations, I will not panic. I know that I have enough money to complete living a happy life. The cash reserve minimizes my risk of catastrophic failure.
The other thing that helps me is playing Euchre, a card game in which one must assess statistical uncertainty. The result is that sometimes I lose and sometimes I win. This is exactly what happens in investing. I hope to come out ahead on the average, which so far I have achieved. The important idea here is that one cannot be perfect. One hastotake prudent risks and learn how to behave and emotionally tolerate frequent losses in order to maximize the probability of success.
I am writing these thoughts so that I won't forget and panic in the bad times that I suspect are coming.
Last updated August 8, 2016
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