Dennis Gartman is a long-time and dear friend of mine. We have a close personal relationship that I treasure.
For many years Dennis has delivered his investment ideas and outlook in the business media and, on a regular basis, in his venerated The Gartman Letter.
Like some others who offer frequent and public advice he has often been the unfair target of criticism -- which at times has seemed like an obsession -- from the many who are shrouded in anonymity in social media and reside in the cheap seats, never having been, like Denny, on the playing field.
But that criticism has never deterred him or his process.
Over the last several months Denny has suffered from some serious health problems, making the production of his commentary more and more difficult -- reducing him to a weekly delivery of The Gartman Letter. Now he has told me his commentary will be even less frequent, probably sent out every two weeks in his regular Thursday evening time slot.
Denny sent me his letter last night and attached to it were some pearls of wisdom: Gartman's Rules of Trading: The 2022 Version, which I wanted to pass on and from which we all can learn from:
1. NEVER, EVER ADD TO A LOSING POSITION... NOT EVER!: Adding to losing trades eventually leads to ruin. All great market humiliations are first preceded by a person... or a group... doing so such as the Nobel Laureates of Long Term Capital Management or Nick Leeson of Barings or Sam Bankman-Fried!
1. NEVER, EVER ADD TO A LOSING POSITION... NOT EVER!: Adding to losing trades eventually leads to ruin. All great market humiliations are first preceded by a person... or a group... doing so such as the Nobel Laureates of Long Term Capital Management or Nick Leeson of Barings or Sam Bankman-Fried!
2. TRADE LIKE A MERCENARY: As investors we are to fight on the winning side of the trade, not on the side of the trade we believe to be economically correct. We are pragmatists first, last and always.
3. MENTAL CAPITAL IS EQUAL TO REAL CAPITAL: Capital comes in two types: mental and real. Losing trades diminishes one's finite, measurable real capital AND one's infinite and immeasurable mental capital... and does so always and everywhere.
4. WE ARE NOT IN THE BUSINESS OF BUYING LOW AND SELLING HIGH: We are in the business of buying high and selling higher, or of selling low and buying lower. Strength begets strength; weakness begets weakness.
5. IN BULL MARKETS, ONE MUST TRY ONLY TO BE LONG OR NEUTRAL: The corollary is that in bear markets one must only be short or neutral. There are exceptions, but they are rare.
6. "MARKETS CAN REMAIN ILLOGICAL FAR LONGER THAN YOU OR I CAN REMAIN SOLVENT": Either Lord Keynes or my friend and mentor, Dr. A. Gary Shilling, said this many years ago and they were...and still are...right, for illogic does often reign, despite what the efficient market academics would have us believe. Witness FTX!
7. BUY THAT WHICH SHOWS GREAT STRENGTH; SELL THAT WHICH SHOWS GREAT WEAKNESS: Metaphorically, the wettest paper sack breaks most easily and the strongest winds carry ships the farthest and the fastest.
8. THINK LIKE A FUNDAMENTALIST; TRADE LIKE A TECHNICIAN: Be bullish when the technicals and fundamentals, as you understand them, run bullishly in tandem. Be bearish when they don't.
9. TRADING RUNS IN CYCLES: In the "Good Times" even one's errors are profitable; in the inevitable "Bad Times" even the best researched trades fail. This is the nature of trading. Accept this and move on.
10. KEEP THINGS SIMPLE: Complication is confusing; simplicity breeds elegance and profitability.
11. UNDERSTANDING PSYCHOLOGY IS OFT TIMES MORE IMPORTANT THAN UNDERSTANDING ECONOMICS: Or more simply put, "When they're cryin' you should be buyin' and when they're yellin' you should be sellin'!" But golly, that is difficult!
12. REMEMBER, THERE IS NEVER JUST ONE COCKROACH: Bad news seems always to follow with more bad news and always with an ever worsening impact. Again, witness FTX!
13. BE PATIENT WITH WINNING TRADES; BE ENORMOUSLY IMPATIENT WITH LOSERS: The older I get the more small losses I willingly take.
14. DO MORE OF THAT WHICH IS WORKING AND DO LESS OF THAT WHICH IS NOT: This works in life as well as trading. If there is a "secret" to trading... and to life... this is it!
15. CLEAN UP AFTER YOURSELF: Need I really say more? Errors only get worse.
16. SOMEONE ALWAYS HAS A BIGGER JUNK YARD DOG: No matter how much "work" I do on a trade, someone knows more and is more prepared than am I... and has more capital!
17. WHEN THE FACTS CHANGE, CHANGE! Lord Keynes... again... once said that "When the facts change, I change; What do you do, Sir?" When the technicals or the fundamentals of a position change, change your position, or at least reduce your exposure.
18. ALL RULES ARE MEANT TO BE BROKEN: But they are to be broken only rarely and true genius comes with knowing when, where and why!
Good luck and good trading.
(This commentary originally appeared on Real Money Pro on Dec. 9. Click here to learn about this dynamic market information service for active traders and to receive Doug Kass's Daily Diary and columns each day from Paul Price, Bret Jensen and others.)
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December 13, 2022 at 02:30AM
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