Bernard Baruch – Rich By Thirty

Our story begins in 1891. Bernard Baruch takes a job as an office boy with a small brokerage firm known as A.A. Housman. His salary was $5 per week. Although there were thoughts of becoming a physician like his father, his interests lie in finance.

By the time Baruch got involved in trading, approximately 60% of all listed companies were involved in the railroad industry. It was here he made his first mistake; over $8,000 lost in a railway venture in Lake Erie.

You probably spend that much in commuting alone. But in those days $8,000 was $8,000.

It wouldn’t be his last mistake. Bernard Baruch experienced many losses during his first years of trading. He was determined not give up and keep learning from his losses until he found a method to the madness.

Before we get into his lessons, it must be said not only was he an extremely bright trader, but he rolled with the big wigs. He was a confidant of presidents Woodrow Wilson, Theodore Roosevelt and Winston Churchill. Although he never ran for office, he was appointed to several official government posts.

His Lessons

The strategies listed below are not the ‘secrets to the universe’. That’s the beauty of them. These rules are ways to make money in the stock market without driving yourself nuts.

Bernard Baruch   Rich By Thirty

Ride the market cycles. He found the best profit opportunities arise with market leaders as the economy is coming out of a recession. Although stock market leaders do change when an economy is coming out of a bear market, they can be identified by their good fundamentals and rising stock prices.

Although recessions aren’t as frequent as they were 100 years ago, we do have sharp market drops. These include threats to an oil supply, terrorist attacks, subprime mortgage meltdowns and an assortment of CNN news breakers. When the market turns up…it will be the leaders of the strongest groups that will make you the most money the quickest.

Many free sites offer which industries have the highest percentage gains and then rank the best stocks within.

Ignore inside information and tips. Bernard Baruch was already on his way to becoming partner when he almost lost all his money on a stock tip. He purchased American Spirits Manufacturing at $10 per share and watched it drop to $6.25 within a few weeks. He lost thousands. If you get your stock tips from Yahoo! message boards, I can suggest quicker ways of disposing your cash.

Focus on and buy only a few stocks. Owning more stocks does not mean you increase your chances of making more money. Pick one, two or maybe three if you’ve got the time. It’s enough work just to watch and strategize what to do with one stock.

Have a complete understanding of a companies fundamentals. Analyzing a chart is so much quicker than trying to figure out if a company’s EPS has been increasing over the past three years. However, one of the main reasons a stock chart points up, is if the EPS is increasing. It pays big time to check out Yahoo!, MSN or Investors.com and read your stock’s fundamentals. These sites have the numbers easily summarized and good fundamentals are what raise a stock’s price.

Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars. Bernard Baruch said this. Need I say more.

Cut your losses quickly. This line is heard throughout Wall Street. So why do many investors ignore it? It’s called hope. You did all this work to find the perfect stock. So, you log into your Charles Schwab account and hit the “buy” button at $15 per share. Over the course of a few days it drops to $10. You hang on. It’s got to rebound. As a matter of fact, you promise yourself to sell it at $15 because once you make your money back, you’ll never buy this stock again. If a stock has dropped this low, it’s short to medium term future doesn’t look bright. Now you’re stuck with a losing stock, and don’t have access to that cash. Cut your loses quickly. 8% loss is a good sell point.

The stock market is a reflection of economic cycles. Not the cause. Bernard Baruch believed the ups and downs of the stock market reflect the health of the economy. Economic events, rumors, news, expectations and fear cause bull & bear markets. These reactions all mix into the stock market and then magnify. By investigating the reason a stock has risen 45% in a week gives you an advantage over an investor who throws money at a stock based solely on the rise.

The market has shown cycles will repeat. Stocks do not rise 45% a week forever. If you were a holder of that stock you would look for signs of topping out and get ready to sell. These signs might include increase in volume and the breakdown of prices.

On the other hand, you might see this as an opportunity to short it.

Many traders like to rely only on the chart. The belief is everything you ever want to know about a stock is reflected in its price. I personally focus about 80% of my research on the charts. Bernard Baruch believed strongly in fundamentals. It’s the fundamentals that give insight to future revenue flow; which in turn play a strong role into the price of a stock.

Bernard Baruch’s three most important fundamental considerations were: the assets a company owned & cash position, was there a demand for its product or service and how well was management performing.

“When good news about the market hits the front page of the New York Times, sell.” – Bernard Baruch