Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Jeff Saut: Avoiding Catastrophe is First Priority

By

Best investors can fail to observe most basic rule.

PrintPRINT

Ever since the House of Representatives failed to pass the Paulson Plan, I have suggested that the main theme for investors was "survival." Accompanying that theme has been this mantra: Be the second mouse - the one who gets the cheese, because the first mouse often gets caught in the trap.

To be sure, over the last 4 weeks those participants who attempted to pick the bottom have been the "first mouse" - they've lost money. Given last week's wilt, I've decided a third mouse is what's needed.

Since the original Dow Theory "sell signal" of September 2001, my firm's strategy has been to manage the risk by not letting anything go more that 15% to 20% against us. This is the philosophy of no less formidable an investor than Warren Buffett.

Buffett says it wasn't his best ideas that gave him his tremendous track record; it was having fewer bad ideas that resulted in a permanent loss of capital: "We haven't taken 2 steps forward and one step back. We've taken 2 steps forward and a fraction of a step back. Avoiding the catastrophes is really important."

Actionable ideas, instant analysis. Real-time from bell to bell.
Minyanville's Buzz & Banter - 14 day FREE trial

Avoiding, and/or managing for, the catastrophes is one of the biggest secrets on Wall Street. Anyone in the real world, however, knows that you have to manage for the risks: Apple producers know they're going to lose 5 or 6 apples out of every 100 to spoilage, and they manage for it. Light bulb manufacturers know they'll lose 2 or 3 light bulbs out of every 100 to breakage, and they manage for it.

Still, in the investment business, there are very few of us that continually discuss managing the risk. Even some of the best operators on Wall Street have recently failed to adhere to this most basic rule of investing.

Indeed, for years we have idolized Ken Heebner of CGM Focus Fund (CGMFX) fame, as well as Marty Whitman, captain of the Third Avenue Value Fund (TAVFX). Both of these brilliant investors' track records are legendary - but this year, both of them are down over 45%.

No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
PrintPRINT
 
Featured Videos

WHAT'S POPULAR IN THE VILLE