Baruch, the Wall Street genius: The crowd is always wrong!

Combining the Red and the Green.

Wall Street genius Baruch's investment approach is flexible and ever-changing. He advocates caution when the public is greedy and taking action when they are fearful.

Furthermore, he emphasizes the importance of resolute stop-loss strategies. Investors who are conscious of setting stop-loss orders, even if they are only right three or four times out of ten, can still become wealthy.

01 Investment Philosophy

1) How to Choose Investment Targets?

Baruch suggests paying attention to three aspects when selecting investment targets:

First, they should have real assets;

Second, it's preferable if they have operational franchise advantages to reduce competition and ensure the viability of their products or services;

Third, and most importantly, is the management capability of the investment target.

Baruch warns that it's better to invest in a company with good management but limited funds than to touch the stocks of a well-funded but poorly managed company. Baruch also places significant emphasis on risk control, believing that it's essential to keep a certain amount of cash on hand; he advises investors to regularly reassess their investments to see if the stock price can still meet the original expectations after changes in the situation.

Investors must learn to set stop-loss orders: mistakes are inevitable, and the only choice after an error is to set a stop-loss order as soon as possible. Baruch does not believe in so-called excess returns and advises against trying to buy at the bottom and sell at the top. Anyone claiming they can always buy low and sell high is lying. Investors should beware of insider information or hearsay, as investment mistakes often stem from these sources.

2) Always Go Against the Tide

"The public is always wrong" is the first principle of Baruch's investment philosophy. Many of his profound insights into investments stem from this basic principle. He advocates a simple standard to distinguish when to buy at a low price and when to sell at a high price: when everyone is cheering for the stock market, you should decisively sell, regardless of whether it will continue to rise; when stocks are so cheap that no one wants them, you should dare to buy, regardless of whether they will fall further. People are often amazed by Baruch's judgment and his ability to seize fleeting opportunities.

Any so-called "real situation" in the stock market is indirectly conveyed through people's emotional fluctuations; in any short period, stock prices rise or fall mainly not due to objective, non-human economic forces or changes in the situation, but because of people's reactions to events.

Therefore, he reminds everyone that the foundation of judgment is understanding. If you understand all the facts, your judgment is correct; otherwise, it is wrong. Buffett and Baruch are in agreement when it comes to understanding public psychology. Buffett also often says that when the public is greedy, you should be cautious, and when they are fearful, you should be bold, right? The two masters share many similarities in their investment philosophies.

Baruch's investment approach is more flexible and advocates resolute stop-loss strategies. Investors who are conscious of setting stop-loss orders can still become wealthy even if they are right only three or four times out of ten. He advises investors to have a backup plan to exit at any time.

3) Do Not Believe in Rumors

No one can master all the investment essentials in every industry. Therefore, the best investment approach is to focus on the industry you know best and are most familiar with, and then devote all your energy to it.

For Baruch, he admitted that he had never been able to grasp the investment secrets of agricultural products. He once said in frustration, "It seems to me that whenever I invest in a certain agricultural product, that product becomes less and less valuable." Baruch's most painful blow in investing in agricultural products was a coffee deal. He believed an authority's prediction that coffee production would significantly decrease and bought a large amount of coffee.

However, the market conditions turned out to be the opposite of the authority's prediction, with coffee production that year exceeding all previous years. Despite government measures to support coffee prices, the market price of coffee continued to decline.

In the end, Baruch had to painfully sell off all the coffee he held, resulting in a total loss of seven to eight hundred thousand US dollars. He had to admit that the reason for this failure was entirely due to blindly trusting the authority's words without analyzing the changing market. This experience left a lasting impression on Baruch, and even later, he still recalled with lingering fear, "Some things about insider information seem to numb one's reasoning ability, making one ignore the most obvious facts."

02 Investment Literacy

1. Independence: You must think independently. Avoid being emotional and eliminate all environmental factors that may lead to irrational behavior.

2. Judgment: Do not overlook any details—ponder for a moment. Do not let your hopes influence your judgment.

3. Courage: Do not overestimate the courage you may have when everything is against you.

4. Agility: Be good at identifying all factors that may change the situation and influence public opinion.

5. Caution: Be more accommodating, otherwise it is difficult to be cautious. When the stock market is in your favor, you should be even more humble. Buying when you think the price has reached the lowest point is not cautious; it's better to wait and see, it's never too late to buy later. Insisting on selling only when the price reaches the highest point is also not cautious—selling too quickly is probably safer.

6. Flexibility: Consider all objective facts and your subjective opinions comprehensively, and then reconsider. You must completely abandon a stubborn attitude—or "know-it-all" attitude. Insisting on making a certain amount of money within a certain period will completely destroy your flexibility. Once you decide, act immediately—do not wait and see how the stock market will behave.

Almost everyone finds it difficult to escape being controlled by their emotions: they are either overly optimistic or overly pessimistic. Once you have grasped the objective facts and formed your own opinions, observe the trend quietly. You should know what should happen in the market, but do not mistake it for what will happen in the market.

The more the public intervenes in the stock market, the greater their power. Do not try to go against the crowd, nor stand too far ahead. If it's a bull market, of course, do not short sell, but if there is a possibility of a reversal or if holding stocks makes you anxious, do not stay for long; vice versa.

When panic hits the stock market, even the best stocks may not be sold at a reasonable price. Pay close attention to all events that excite or frighten the public. When stock prices rise, consider all factors that could make them rise even higher, and also consider the opposite, do not forget history.

When the stock price falls, the same principle applies. Pay attention to the mainstream, but you don't need too many companions.

"Stop the losses and let the profits continue." Overall, you need to act quickly. If you can't do this, reduce your involvement. Also, if you have doubts, reduce your involvement. Once you have made up your mind, you should act immediately, without worrying about the market's reaction. Nevertheless, when devising a plan, you must consider the market trends from time to time.

After fully understanding the past situation and comprehensively grasping the current situation, compare the two. Mentally prepare for all obstacles, as overreacting always leads to excessive reactions.

The unpredictable element: consider the factor of "opportunity" and be prepared financially, mentally, and physically at all times.

03 Ten Trading Rules

1. Do not speculate unless you treat it as a full-time job.

2. Beware of so-called insider information or rumors.

3. Before buying bonds, find out all the information you can get about the company, its managers and competitors, and its potential for earnings and growth.

4. Do not try to buy at the bottom and sell at the peak. This is almost impossible - unless the person is used to lying.

5. Know how to accept losses quickly. Do not expect to be right all the time. If you make a mistake, cut your losses quickly.

6. Do not buy too many different securities. It is better to have a few investments that you can keep track of.

7. Regularly reassess all your investments to see if changes in development have altered their expectations.

8. Study your tax position to see when selling can bring greater benefits.

9. Keep a portion of cash reserves. Do not invest all your funds.

10. Do not invest everywhere. Instead, invest in the areas you know best.