There are many lists of investing rules, and many contain very worthwhile, valuable advice. I’ve even read some of them. The trouble is investing is a complex cognitive process, frequently accompanied by extreme pressure, and there are limited cognitive resources available to cope with it. In those circumstances, your odds of thinking of the most relevant principle out of a list of five, let alone a dozen or more, is near zero. So I try to stay out of trouble with one, and only one, rule:
It’s never that easy.
I know what you’re thinking. That’s freaking brilliant! Why didn’t anyone else think of that? But it’s not just the usual idea that you can’t get something for nothing that makes this rule important. It’s that very rarely it can seem like you can, and it’s those rare instances that are your worst enemy.
Investing is a process which takes time, effort, and execution in order to succeed. It also inherently involves a significant element of randomness. You may find a deal or trade that makes your head spin with the riches that await you, and the nature of the game means there’s always a chance you’ll be correct. Everyone has heard stories about some lucky bastard or other, and human nature makes it all too easy to believe it’s your turn to be that one lucky bastard. But it’s far more likely you’re simply overlooking something important and the seeming manna from heaven landing at your feet will later cause you to grab your head in both hands, wail and moan like a wounded animal, and wish that god had struck you dead before you got out of bed that morning.
Markets aren’t completely efficient, but they are mostly efficient. Easy money tends to be rapidly removed by the largest, fastest, most connected participants. In other words, someone other than you. When you’re in a groove, trading can indeed be easy, but not that easy. If you think it’s your lucky day, always think again. Twice. Do you really feel that lucky, punk?