Dennis Gartman: The Gartman Letter
Dennis Gartman: The Gartman Letter
The Investment U E-Letter: Issue #394
Monday, December 13, 2004
Dennis Gartman: The Gartman Letter and His Rules of Trading
By Dr. Steve Sjuggerud, Chairman, Investment U
You may not know his name...
He doesn't work for a big financial firm, or appear on the cover of magazines. (He doesn't even advertise.) What he does is what he's done for decades...
Dennis Gartman simply writes the best daily newsletter on the stock markets. In fact, The Gartman Letter is the first thing I read in the morning.
Gartman's done many things right this year... He bought bonds at the right time, and then shorted them at the right time too. He shorted oil at the top. And after being long gold for a long time, he got out just before gold and silver started crashing last week.
For a taste of his writing, here's a quote from last Monday's Gartman Letter (December 6), written after he got out of gold, and before gold and silver crashed:
"We have been bullish of gold for quite some while, until late last week when we chose to stand aside completely from the market. We may do so for a while, for the 'dance floor' is crowded with very latecomers to the party, and the gold bugs are crowing loudly on their various websites. It has been years since we've 'heard' such vehement beating of their collective chests and self-congratulatory applause. Gold may yet go higher... but it shall do so without us."
A Sample from Dennis Gartman's 20 Rules of Trading
How does he do it? Fortunately for you and me, Gartman shares that with us...
Once a year, on the day after Thanksgiving, Dennis Gartman publishes his 20 Rules of Trading.
I thought the best use of your time today would be to share some of his rules with you. In Gartman's own words...
1. Never, ever, ever add to a losing position: To do so will eventually and absolutely lead to ruin. Remember Long Term Capital Management and its legion of Nobel laureates who broke this rule repeatedly and went into forced liquidation. Learn this lesson well and early!
2. Capital comes in two varieties: Mental capital, and that which is in your account: Of the two, mental capital is the more important. Holding losing positions costs measurable sums of actual capital, but it costs immeasurable sums of mental capital.
3. The objective is not to buy low and sell high, but to buy high and to sell higher: We can never know what price is "low." Nor can we know what price is "high." Always remember that Nortel fell from $85/share to $2 and seemed "cheap" all times along the way.
4. "Markets can remain illogical longer than you or I can remain solvent," is a brilliant statement from our good friend, Dr. A. Gary Shilling. Illogic often reigns and markets are inefficient despite what the academics try to tell us.
5. Sell that which shows the greatest weakness, and buy that which shows the greatest strength: Metaphorically, when bearish, throw rocks into the wettest paper sack, for they break most readily. In bull markets, ride the strongest winds.
6. Think like a fundamentalist; trade like a technician: It is imperative that we understand the fundamentals driving a trade, and that we understand the market's technicals also. When we do, then, and only then, should we trade.
7. Understanding psychology is usually more important than understanding economics: Markets are driven by human beings making human errors and also making super-human insights.
8. Be patient with winning trades; be enormously impatient with losing trades: Remember, it is quite possible to make large sums trading/investing if we are "right" only 30% of the time, as long as our losses are small and our profits are large.
9. The Hard Trade is the Right Trade: If it is easy to sell, don't; and if it is easy to buy, don't. Do the trade that is hard to do and that which the crowd finds objectionable. Peter Steidelmeyer taught us this 25 years ago and it holds truer now than then.
10. There is never one cockroach: Bad news begets bad news, which begets even worse news.
I love this list. As you probably know by now, my core investment strategy is to buy something of exceptional value when nobody else wants it, when an uptrend has begun.
When I read through Dennis Gartman's Rules of Trading, I see that he and I think a lot alike. You've got to consider both economics and human psychology... and you've to got to consider both the fundamentals and the existing trend of a trade you're considering. It's not easy. But this is the way to make money in the markets. Dennis Gartman's daily track record is proof.
Thanks Dennis, for sharing your trading rules with our readers.
Today's Investment U Cribsheet
- Dennis Gartman writes The Gartman Letter every day. The letter is not directed to casual individual investors, but rather to larger investors needing to have a full briefing to start their day. The letter is not cheap, and it is not casual reading, but it is worth it for the right investor. If you're interested, Dennis often offers a free trial, where he'll send his letter to prospective investors for a couple weeks. For more information, check out The Gartman Letter website.