When asked what the stock market will do, J.P. Morgan famously responded:
“It will fluctuate.”
And the media? They love a good headline. Tariffs, AI breakthroughs, political drama … you name it.
But I don’t make investing decisions based on hype or fear. Instead, I have an approach that has worked for the past 40+ years…
And here’s why…
The Secret Trading Places Taught Me
The key in my approach was that it took the emotion out of trading…
Right around the time I first started trading on the floor of the New York Futures Exchange in 1983, a movie starring Dan Aykroyd and Eddie Murphy, called Trading Places, hit the theaters.
For those of you who haven’t seen it, the plot revolves around a snobby investor and a con man. They find their positions reversed as part of a bet by two millionaires.
The final scene of the movie takes place on the trading floor, where the millionaires are taken to the cleaners.
The accurate depiction of the trading floor made an impact on traders and regulators alike!
In 2010, the head of the Commodity Futures Trading Commission proposed to Congress a rule called the “Eddie Murphy” rule based on Trading Places.
When the two characters are about to walk on the trading floor, the snobby investor gives the con man a pep talk on what to expect:
Think big, think positive, never show any sign of weakness. Always go for the throat. Buy low, sell high. Fear? That’s the other guy’s problem.
Nothing you have ever experienced will prepare you for the absolute carnage you are about to witness. Super Bowl, World Series — they don’t know what pressure is.
In this building, it’s either kill or be killed. You make no friends in the pits and you take no prisoners. One minute you’re up half a million in soybeans and the next, boom, your kids don’t go to college, and they’ve repossessed your Bentley.
Check out this link for the original clip!
His description of trading is just as valid today as it was when the movie came out 42 years ago. And that’s because human nature doesn’t change.
Here’s a little secret…
Good trading advice isn’t about what to buy or sell, or even how to analyze markets.
Instead, it focuses on keeping your emotions in check.
If you lack confidence, are unable to handle the pressure and take it personally — you have a slim chance of making money in the markets.
The 4 Questions I Ask Myself Before Buying a Stock
Divorcing emotions from your investing will save you money and help you sleep at night.
And the key to keeping emotions from tangling up your investment decisions is to have a strong, simple system for picking your investments.
Before even buying one share of stock, I ask myself three questions:
- Is the business run by a great management team?
- Is the business in a mega trend industry that has a tsunami tailwind behind it?
- Does it have a rock-solid balance sheet?
- Is the stock trading at a great price?
Yes, it really can be that simple!
Wall Street loves to needlessly complicate investing, but I’m here to show you what you need to pay attention to and what is just noise.
When it comes to investing, I want a business that I can understand, has a solid balance sheet and generates free cash flow.
What good is a business that is growing by leaps and bounds yet can’t pay its rent or finance its business?
I also want to make sure that my risk of permanent capital loss (the business going bankrupt) is close to zero.
Sometimes the stock price doesn’t account for a great management team. Many times, investors throw a business into the unloved pile because the industry is out of favor.
Those are the times when I back the truck up and buy the stock.
After I’ve invested in the stock and the market is on a wild roller-coaster ride, it doesn’t bother me in the least.
As long as the business is still financially sound and I bought it at a bargain price … I sleep well at night.
It’s that simple — emotions are the greatest thief of profits.
Fear? That’s the other guy’s problem.
Regards,
Charles Mizrahi
Founder, Alpha Investor
