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In this shared piece, author Brett Cenkus argues that nation-states will cease to exist not because of a who, but a what - and it's already here.

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August 31, 2004

How the Big Pros Won: Lessons from the Greatest Stock Traders of All Time Proven Strategies Active

By Gregory Bresiger

They recognize that even the best are going to fail a large part of the time, but they subject themselves to unending self-criticism. That's because in baseball, and probably in life in general, the best performers make out about 66 percent of the time. Those kind of dismal numbers were familiar to Baruch or anyone who has ever tried to accomplish anything of substance.

For Baruch, a good deal of failure was unavoidable. However, what was important was how one reacted to failure. Did one understand it in its early stages and admit mistakes, thereby limiting the damage? Another thing that was important was whether one actually learned enough from a humiliating history so that the next time would be an improvement.

The most common mistakes Baruch tended to find were professionals who traded "beyond their financial capital capacity" and not knowing enough about a "company's management, earnings, prospects and possibility for future growth." (page 45).

Law of Averages

But always, Baruch reminded those who would listen, that there is a law of averages - a law very similar to that maddening summer game of my youth - that will inevitably catch up to even the best traders and money managers.

"No speculator," said Baruch, "can be right all the time. In fact, if a speculator is correct half of the time, he is hitting a good average." This is a remarkable admission for a man who was widely admired in his lifetime. But there's still more modesty, but also some hope.

"Even being right three or four times out of ten should yield a person a fortune if he has the sense to cut his losses quickly on his ventures where he has been wrong." (page 38).

I think anyone who puts money at risk should read this statement slowly. Read it several times. Read it especially when one is riding high and hearing that he or she is the latest incarnation of Benjamin Graham. Read it in the middle of the next bull market, when credulous souls are proclaiming to even more credulous journalists that bear markets have been outlawed. Read it when you, once again, start to hear that market making is a can't fail business.

Indeed, here is one of the benefits of this book. Its philosophy of self-criticism has many applications outside of the narrow subject of the book. How many times would nations, institutions and individuals have been spared incredible pain if they had simply had the ability to turn back from what one great historian once called "The March of Folly?"

Gerald Loeb, another legendary trader, also emphasized that the first law of trading success is "the ability to accept losses, cut them short and move on if the stock moves against you. This was his insurance policy against large losses. Just like Livermore and Baruch before him, his rule was to limit his losses to no more than 10 percent. This was his absolute maximum and a rule that he could simply not ignore." (page 59).