DeHaemer’s 55 Rules of Trading Part 3

DeHaemer’s 55 Rules of Trading Part 3

How to Value a Stock

Have you ever bought a house? In my first house-buying experience, I was about 23 years old and looking at row homes in Baltimore in 1998. Luckily we closed on a bigger-than-average house on the edge of an up-and-coming neighborhood called Federal Hill.

We were hoping to gentrify the heck out of it.

The closing price was $73,000. However, it turned out that it was located next to some unsavory people and we sold a year later into a booming market for $155,000 – crazy.

That same house sold for $350,000 in 2006 and is roughly about the same price today.

The point is that my first home-buying experience taught me how to value a house. The realtor took us to 20 other row homes just like it. You walk around with a mental scale and determine value using several metrics.

How are the schools? How many bedrooms and baths? Is it near a park? Does it have a view? How is the crime? What will the neighborhood look like in a few years? Is it up and coming or falling apart? Is there a parking spot or something that’s not in the listing? Does it need work? Can I add value by doing some work?

The same thing happens with stocks. Is there growth? How much am I paying for it relative to its peers? Is it overhyped to the point that I have bidding competition? Are we at the top of the market, the bottom or somewhere in between? Will the money the company is spending now pay off next year? Are there parts of the business that aren’t being valued accurately and could be spun off?

You weigh up all the parts and if it seems like a buy, you buy it.

Here is part 3 of DeHaemer’s 55 Rules of Trading:

Rule #21: Contrarians are correct at turning points in the market but wrong the rest of the time.

Rule #22: There are four types of traders: momentum, technical, fundamental, and insider.

Rule #23: Insider trading is the most lucrative, though illegal for everyone except Congress.

Rule #24: Momentum traders are correct most of the time, but wrong during turning points.

Rule #25: It is against self-interest for technical traders to reveal their buys and sells.

Rule #26: Fundamental traders want the world to know they bought and sold.

Rule #27: When you make a successful trade, take 5-10% of the profits and buy something tangible. Reinvest the other 90%. Positive reward is a thing.

Rule #28: When you hit 100% gains on any equity trade, take your original stake off the table and forget about the remainder. It is house money, let it ride.

Rule #29: Economists are wrong.

Rule #30: The stock market is a leading indicator of the economy, not the other way around.

All the best,

Christian DeHaemer

Outsider Club

DeHaemer’s 55 Rules of Trading Part 3

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