markets
No Iron-Clad Laws
The rule
No money rule works in every time. Like an umbrella made only for rain, it fails the day the weather changes.
Where it flips
Push it too far and 'no rule is absolute' becomes an excuse to drop all discipline and trade on gut. That is worse than one flawed rule. The fix: keep a few simple rules, but add a clear line to each one: 'this stops working if…'.
Every neat rule you read once worked, and once failed. 'Buy when PE is under 15.' 'Never sell a great business.' 'Markets always come back in three years.' Each was true in some times and false in others. Markets keep changing: interest rates, sectors, and moods all move. So a rule that made money for ten years can quietly stop working. The danger is not having rules. It is holding one so tight that you keep betting more while the facts turn against you. Treat a rule as a helpful guide that needs a reason today, not a law for all time.
A worked example
Rohan swore he would 'never sell a great business'. So he held a small stock from ₹800 all the way down to ₹180, even as its orders dried up. He added twice on the way down, because the rule told him to. The rule, not the stock, cost him ₹3,00,000. [illustrative]
How to spot it
- ·You defend a stock by quoting a rule, not today's facts
- ·The rule has not been questioned in years
- ·You add to a losing stock because 'the strategy says so'
Michael Batnick · Big Mistakes