Investing Rule #2: Keep It Simple

It is very easy to keep adding layers upon layers of information and metrics and rule-of-thumbs and advanced statistics and what not on to the investing decision making process - so much so that you end up in a situation of analysis-paralysis. So much information that it is difficult to figure out signal from noise. Plus, I am not a professional investor - I have a day job and I take care of my money in the time I have left when life gets done with me. So I can't afford to make things too complicated. My solution - Keep Things Simple.

For keeping things simple, I follow some simple, learned over time, rules. First, I only look at closing prices. So no candlestick charts, open-close-high-low metrics for me. I use simple line charts that only plot closing prices. Since I am investing with at least several days to a few weeks timeline in mind, I don't think other price metrics provide me with significantly more information than just the closing price data.

Second, I restrict my universe of technical metrics to a few that I understand well. Currently, I use Moving Averages, MACD, PSAR and RSI - and that's it. Of course there are several advanced metrics - but again - given that I am not likely to have more than say half an hour every day to look at these metrics, I can only focus on a few.

Lastly, and this is something I learned from bitter experience, I have suppressed the urge to doubling down on a bet that does not seem to be working. As I said before, Market Knows Best, so if something is not working, quit. You can also re-enter anytime for the tiny price of a few bucks in trade commission. The surest way to not getting enough sleep at night is to be worrying about the large bet in the market that is not going well. I have been there and it is not a nice place. Instead, quit when things look down and keep your bets modular with each component small enough that you don't lose sleep over it. My golden rule now is - when you enter a stock, always figure an exit price and if the stock hits the exit price then don't hesitate - get out.

M. C. Escher, Drawing Hands, One of my absolute favorite!