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How to Become a Successful Investor

If you started investing in the last couple decades, you probably don’t remember Joseph Granville, who passed away last Saturday at the age of 90. But investors who were active in the late 1970s and early 1980s will remember Granville for a couple of prescient market calls and his idiosyncratic...

If you started investing in the last couple decades, you probably don’t remember Joseph Granville, who passed away last Saturday at the age of 90. But investors who were active in the late 1970s and early 1980s will remember Granville for a couple of prescient market calls and his idiosyncratic fame that followed.

In 1976, after a two-year rally, Granville predicted that a bear market was about to start. The Dow obliged, cratering 26% from the beginning of 1977 through February 1978, and Granville’s star rose as the market fell.

Then again in January 1981, Granville issued an urgent bearish call, telling his Granville Market Letter subscribers to “sell everything.” A two-month decline began the next day, which was the most active trading day in the history of the NYSE, thanks in part to Granville’s growing legion of followers.

Granville’s fame rose with each accurate call. As The Chartist Editor Dan Sullivan wrote about his late contemporary: “Joe took full advantage of his new found celebrity with his standing-room-only seminars taking on the air of a tent show revival meeting. ... His seminars became spectacles and Granville was the consummate showman. He appeared with trained chimpanzees, bikini-clad assistants often punctuated with elaborate entrances. In a performance in Tucson, he created the illusion of walking across a resort swimming pool and greeted his audience with ‘Now you know,’ intimating that he indeed walked on water. Continuing with that theme, he also appeared as Moses complete with the Ten Commandments. An accomplished pianist, he headlined Carnegie Hall to a packed house playing his theme song, ‘The Bagholder’s Blues.’ Adding to his reputation as the ‘clown prince of investment advisors’ he also claimed he was able to predict earthquakes.”

Of course, the earthquake prediction sideline didn’t work out. And Granville remained bearish for too long in the 1980s, missing out on the market’s significant gains, then turning bullish shortly before the 1987 stock market crash. Hulbert Financial Digest Editor Mark Hulbert calls his overall record “disastrously poor.”

But though his fame waned, Granville is remembered for creating the On Balance Volume Indicator (OBV), a market measure he introduced in 1961 that was one of the first to measure positive and negative volume flow and is still widely used today.

He is also remembered by his subscribers, who continued receiving his Granville Market Letter in the mail every week (or by fax for a premium) nearly until the day he died. He was a long-time Contributor to the Dick Davis Digests, and we received his most recent issue, dated September 5, last week. Granville had just recently turned bullish earlier this summer, after being out of the market (or shorting stocks) for years.

You can learn something from Granville’s wonky track record, if you try. I think the most important lesson he leaves us with is to heed the market’s trend. Though Granville’s indicators were based on the market, they were still secondary indicators. And too often he obeyed the predictions of his indicators while ignoring what the market was actually doing. A rising market is telling you it’s going up, regardless of how strenuously or convincingly you may be able to argue that it should be going down.

In addition, as Mark Hulbert wrote on MarketWatch last week, “Granville taught us the importance of discipline by often failing to adhere to it himself.”

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While we’re on the topic of learning from your, and others’, mistakes, Dan Sullivan wrote something else that caught my eye in his latest edition of The Chartist.

Sullivan was reviewing some of the most common “negative behaviors and attitudes that can lead to poor investment returns.” I am very familiar with most, having written about them myself:

1. Failure to take losses.

2. Overly fearful at market bottoms and overly optimistic at market tops. ...

3. Not following a disciplined strategy.

Cutting losses short, resisting the emotions of crowds and having and following a system are three of the primary tenets at Cabot, our publisher. So I nodded along with Sullivan’s list approvingly. But his third point made me pause and think. It was:

4. Failure to take responsibility for your own money.

That’s not something we emphasize at Cabot or the Dick Davis Digests frequently. So I kept reading. Sullivan wrote:

Failure To Take Responsibility For Your Own Money

“Most unsuccessful investors have one thing in common. They always blame somebody else or some event for their losses, they never blame themselves. It is always their broker’s fault, the politicians’ fault, their wives’ or husbands’ fault, etc. for their losses. I have heard time and time again the phrase, ‘I wanted to sell out a year ago, but my broker, wife, husband, etc. talked me out of it.’ Many losing investors blame the market itself. I have heard on several occasions from unhappy investors that the market is fixed or rigged. That is why he or she has lost money. Many investors rationalize the fact that of course they have lost money because everyone loses money in a bear market and they are like everyone else that is losing money.”

I’m tempted to say that the reason I haven’t heard this point before is that our subscribers take more personal responsibility for their investments, having already taken the step of subscribing to one of our publications. But Sullivan writes an investment advisory too. His subscribers should be just as self-directed as ours. Thus, I suspect we also have plenty of subscribers, and even more non-subscriber readers, who have said “I wanted to sell out a year ago, but my broker, wife, husband, etc. talked me out of it.”

If that sounds even a little familiar to you, then you should definitely read this next part of Sullivan’s article:

How To Become A Successful Investor

“First make an honest evaluation of yourself. Do you have the time, energy, discipline and psychological ability it takes to make money in the stock market? If you don’t that’s okay, but you owe it to yourself to seek out the best possible investment advice you can find. This is available in many different forms, from individual investment advisors such as us, highly rated no-load mutual funds, exchange traded funds and so on. In your search remember past performance is not everything. Thoroughly analyze performance not only in up markets but most importantly in down markets.

“If you find that you are ready to tackle the job of investing on your own, here are some solutions to overcome the psychological roadblocks to success.

“First realize not every investment is going to make you money. It takes a great deal of discipline to admit when you are wrong and cut losses before they become unmanageable. If you are going to be successful you must be able to take a loss. Most investors would rather sit on losses for years in the hopes they will get their money back. Do not become one of those investors.

“Follow an investment strategy you feel comfortable with and realize that a successful strategy is not going to work in every market environment so you need to have the discipline and patience to stick with a game plan.

“Learn to be an independent thinker. Try not to follow the crowd. At important market turns the crowd is usually wrong. When the market environment looks the weakest future returns are the brightest. When the market psychology becomes extremely positive and investors are throwing money at stocks and mutual funds, you need to temper your optimism and start planning your exit point.


“Your psychological makeup is just as important as the movements of the markets in determining whether or not you will be a successful investor. The market does not discriminate between someone who has a doctorate degree and someone who does not. Investing can be a humbling experience and investors with large egos usually have difficult time making money. If you follow some of our simple suggestions we think they will help make you a stock market winner.”

Wishing you success in your investing and beyond,

Chloe Lutts Jensen

Editor of Investment of the Week

Chloe Lutts Jensen is the third generation of the Lutts family to join the family business. Prior to joining Cabot, Chloe worked as a financial reporter covering fixed income markets at Debtwire, a division of the Financial Times, and at Institutional Investor. At Cabot, she is a contributor to Cabot Wealth Daily.