The Single Most Important Lesson on Wall Street (You Might Be Surprised)

“The art of investing is being able to adjust to change.” — Gerald Loeb, “The Battle for Investment Survival”

Happy Fourth of July! See my special offer below in honor of financial independence.

I was reminded of the #1 lesson in investing when the drug store Walgreens fell a dramatic 28% last Thursday after reporting dismal earnings. It has yet to recover.

I breathed a sigh of relief because a year ago Walgreens was in my “Flying Five” portfolio along with four other stocks that had done poorly in the past year or two, and I had wisely dropped them from my newsletter and replaced them with a better group of stocks.

In fact, Walgreens stock is down 65% since I removed it from our “Flying Five” portfolio. In February this year, Dow Jones removed Walgreens from the Dow Jones Industrial Average and replaced it with Amazon. Better late than never!

For years, I had included in my ideal investment portfolio the five Dow stocks with the highest dividend and the lowest price. It was a simple technique to find the best bargains among blue-chip stocks. It beat the market by a substantial margin, most of the time, since the early 1990s.

But as the old saying goes, “The trend is your friend… until it ends.” (Maxims of Wall Street, p. 113).

After a couple of years of underperformance, I realized it was time for a change. The old “Flying Five” strategy wasn’t working any more.

As the economist Paul Samuelson once said, “I hate to be wrong. But I hate more to stay wrong.” (p. 30).

So, I came up with better criteria for finding good growth and income stocks in the Dow Jones Industrial Average, and it was a good move. All of the new “Flying Five” stocks are making money, and one is up 45% in less than a year!

Recognizing the Need to Change

I’ve been writing my investment newsletter, Forecasts & Strategies, for 44 years. What is the most important lesson I’ve learned?

It took a while for me to figure it out. Years ago, I noticed that I hardly ever received any letters from subscribers thanking me for a recommendation that made them a lot of money.

But I got plenty of letters complaining when I made a recommendation that lost money.

In finance, they call it “loss aversion.” Investors tend to focus on their losses more than their gains.

So, what is the #1 lesson on Wall Street? 

I was surprised that the answer was found throughout my collection of sayings in “The Maxims of Wall Street.” It came under the title, “Losing Money in the Stock Market,” which runs a remarkable seven pages long, one of my longest sections of the book.

Here are some sample quotes:

“Warren Buffett has two rules of investing: #1. Never lose money. #2. See rule #1.” (p. 165)

In his book on Warren Buffett and George Soros, Mark Tier writes, “When Buffett and Soros invest, they’re not focused on the profits but on not losing money.”

Warren Buffett warns, “Above all, avoid big mistakes.” (p. 166)

Why? Because it’s hard to recover from a huge loss. If a stock drops 50%, you have to double your money (make 100%) to get back to break even.

That’s why Gerald Loeb states, “Cutting losses is the one and only rule of the markets.” (p. 131)

The Golden Rule of Investing

Or, as the wealthy economist David Ricardo advised, “Cut your losses short, let your profits run.” (p. 128) He called it “the golden rule of investing.”

Jesse Livermore, the most famous speculator in the twentieth century, put it this way: “Profits always take care of themselves, but losses never do.” (p. 166)

And Roger McNamee said, “Avoiding losers is every bit as important as finding winners.” (p. 167)

Sound Advice for All Investors

You, too, can learn the most important lessons in investing by regularly perusing your personal copy of “The Maxims of Wall Street.”

As Dennis Gartman advises, “It’s amazing the depth of wisdom one can find in just one or two lines from your book. I have it on my desk and refer to it daily.”

Special Offer on July 4th

“The Maxims of Wall Street” is now in its 10th edition, having sold nearly 50,000 copies. Why? Because every story and quote in the “Maxims” is “a lesson in finance,” to quote Kim Githler, president of the MoneyShow.

In honor of American independence, I’ll autograph every copy of the “Maxims” (or any of my other books) and date them July 4, 2024. 

To get your copy at a discount ($21), go to www.skousenbooks.com. Additional copies are only $11 each. An entire box (32 copies) costs only $327. They make the perfect gift for students, clients and friends. I will autograph each copy, date them July 4, 2024, and mail them at no extra charge if inside the United States.

Update on FreedomFest

Personal Note: The excitement is building with 2,000 investors and freedom lovers celebrating liberty at next week’s FreedomFest, July 10-13, in Las Vegas. Check out all the speakers and our full agenda at Agenda – FreedomFest. Here is my schedule at this year’s big show: My Schedule at FreedomFest 2024 – MSKOUSEN.COM.

Use code EAGLE50 to get $50 off. Register at http://www.freedomfest.com, or call Hayley at 1-855-850-3733, ext. 201. Questions? Email hayley@freedomfest.com.

See you in Vegas! Fly there, drive there, bike there, be there.

P.S. CIA expert analyst reveals the “hidden” secret to evading the stock market crashes. I’ll be sharing those details with you this Monday July 8th at 11:00 AM EST — make sure to keep an eye on your inbox.

Good investing, AEIOU,

Mark Skousen

You Blew it!

Taxes Skyrocket… Under the “Conservative Party” in Britain!

“Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes and a tolerable administration of justice; all the rest being brought about by the natural course of things.” — Adam Smith

Today, Eamonn Butler, the leader of the Adam Smith Institute, sent me this chart showing that Tax Freedom Day has been extended to June 10 in England. That means almost half the year is devoted to paying taxes there!

Source: Adam Smith Institute. Reprinted by permission.

What’s even more shocking is that the growth in government came under the so-called “Conservative Party” — the party of less government and lower taxes. No wonder the Conservative Party is expected to lose in the next election.

Thomas Jefferson warned us: “The natural progress of things is for liberty to yield and government to gain ground.”

And Benjamin Franklin said, “A virtuous and industrious people may be cheaply governed.”

Lest we forget on July 4th!