In this very cynical and self serving post I'll be talking about stocks that I own. Cynically I would hope for the blog to become popular and for you to follow my thoughts. You may even want to invest in stocks I own. I can tell you perfectly seriously that I don't guarantee any return from my musings. I don't even get a return sometimes.
That being said, I occasionally do better than the indexes, and sometimes worse. On the other hand, I keep a large amount of my money, unwisely, in cash. This is to guard against my own ignorance. That's my first rule of investing:
You as a stock trader are ignorant, in ways you don't even know.
This is a Black Swan type of ignorance, in that you can't even gauge the gulf of your lack of knowledge. What this means from a practical standpoint is that I am making hopefully sensible and educated guesses about companies, because (and this is crucial) they ALL have the potential to do something illegal, stupid, or both. And they are ALL subject to chance disasters and events.
HOWEVER, by following Seth Klarman's logic and diversifying, you can fairly well cushion yourself, if you have the nerve to let the market swing around. Here is my rule of practical stock trading.
It's very easy to to buy a stock. It's hard as can be to sell it.
This is because your decision to sell puts your ignorance on line. You CAN"T know the future of a stock at any time but when selling you have immediate feedback on your decision. If it goes down after you sell it, you wonder if you should have held it a little longer. If it goes up, you really kick yourself for not holding it longer. Any loss, even a minimized loss (such bailing out near a bottom before the final bottom) is a negative. And any gain after you sell is a negative.
No wonder Buffet tries to find stocks he can hold 'forever'.