Months later I looked over the notes thus collected to see how the advance information tallied with what actually had happened. Kelly Free Acces Fred C. Synnopsis : Why You Win or Lose 2011 Reprint of 1930 Edition. Certain mental traits that we nearly all have are barriers to success. No two speculative moves are ever the same; no two markets are ever alike; and no two market manipulators ever operate alike. I discovered, also, that stocks are a little like weather. Even after disregarding information from irresponsible people, or those who seemed unlikely to know what they were talking about, if I had bought ten shares of each stock I was advised to buy, I would have lost heavily.
My ice cream suddenly seems more valuable to you and you offer me, say, twelve cents for it. And that is why success is so difficult. We may not know what the highly intelligent minority are doing, but by watching and studying the crowd, we can pick up useful clues as to what that same minority are not doing. Kelly Free Acces , Download Fred C. Ayres expresses it: The man who buys a stock solely because of its seemingly bargain price is like a farmer with a thermometer but no almanac who thinks a hot day in autumn must be time to plant spring crops. Still, there are two primary influences on stock prices.
He began his newspaper career in 1896 as a local correspondent for a small town newspaper and wrote a humor column for The Plain Dealer Cleveland, Ohio for five years. They tend to be intelligent accomplished people. To my astonishment, I learned that it is almost as easy to lose money on good stocks as on poor. What actually works in the market is pretty clear by reading a few books, but what do you do if your stock is down 50%. Certain mental traits that we nearly all have are barriers to success. Gosh, I wish I had pulled the string when all twelve were there, said the old man. You can make a profit in the market only by outwitting the majority of other people.
Yet, the opposite happened — prices fell. In 1930, Kelly wrote: Why You Win or Lose: The Psychology of Speculation. Was it because people were inclined to buy poor stocks or because they merely bought good stocks at the wrong time? But this is simply because human nature in different individuals is so much alike and can stand just so much strain. Kelly proposed that by acting counter — contrarian — to the general tendencies of most market participants, one avoids most typical mistakes, and succeeds at investing. At least, it is fair to assume that you are average. That too has to fit your personality and your ability as a human being to be patient.
Analytical ability becomes crucial and you work hard at truly understanding a company. The time to pull away the prop was when as many turkeys were inside as one could reasonably expect. I convinced myself that it was good stocks bought at the wrong time far more often than hopelessly poor stocks. If you know a few crucial facts about a lot of companies, but not all crucial facts, selling your weak investments and redeploying into your strongest performers may make more sense. Whenever the Wall Street boys have given me back a little more than I entrusted to them, I think it was because, having an insatiable curiosity about what human beings are likely to do, I have looked at the stock market in terms of crowd behavior. If emotion, and the security falls, buy more.
For a long time I studied market trends, business cycles, industrial conditions, reactions, rallies, various causes and effects. A few find bargains only because the majority never recognize bargains. At every step, one is tempted to do that which seems logical, but which is nevertheless unwise. A highly successful speculator shows how to use your skills as an amateur psychologist and a student of human nature to make money through the stock market. Neither did I understand why men are inclined to sell their good securities and keep poor ones. During World War I, Kelly served briefly as special ag Fred C.
More importantly, I should have added something about interplay. If the discount to underlying value is due to emotion, or at least not due to a problem or threat not widely appreciated, very significant amounts of money can be made. It would have been a wonderful adventure even if I had lost, for I had opportunity to learn of quirks and foibles of human nature in the greatest human laboratory on earth. Looking back on my first ventures in the market, I marvel that such a greenhorn as I was ever dared to step in at all. I first became interested in the stock market partly because of a lurking natural disrelish for arduous toil; also, because my curiosity was piqued by the fact that nearly everything anybody chanced to tell me about stocks turned out, in the light of later events, to be almost incredibly wrong. That often leads investors to sell profitable, winning stocks, while holding on to losers. You have to invest differently — be contrarian — because what seems logical, is often a mistake.
You are likely to pay the last fraction of the top figure, for the simple reason that you are an average person. The solitary turkey went to join the others and the man returned empty-handed. That he did so in 1930, says a lot about how little human nature changes. This door was kept open by a prop to which was tied a piece of twine leading back a hundred feet or more to the operator. I never even suspected that good news about a stock is likely to lower its price.
Wise men do not buy a stock until it has been through severe tests and shown an unwillingness to go any lower. What do you do if a stock you are in falls significantly? Readers must also understand that Kelly was a trader, not necessarily an investor, but many of his thoughts transcend into investing. Not every optimist is a sucker; but most suckers seem to be optimists. I think the analogy to the stock market is close. Few of these predictions seemed to come true and I wondered why nearly every man I knew should be so crammed with misinformation.