This Finance Book Changed My Life

If It Doesn't Go Up Don't Buy It!

I'd love to tell you that my first introduction to the stock market was by reading Market Wizards or Reminiscences of a Stock Operator and I was quickly inspired to become instantly successful. Yes I've read both books and they have been really important to me in my development. I also believe that if you're actively trading stocks and haven't ready any of those two books you're doing something wrong.

But this blog post is about a different book. If It Doesn't Go Up, Don't Buy It! by Albert W. Thomas. I bought the book because I meet the Al while in graduate school and I was impressed by his views.

Most of the book centers on teaching the reader how to implement a moving average crossover system in mutual funds. I know wha you're thinking.... this is pretty boring stuff.

But the author is very vocal about one thing. Anybody who wants to make money in the markets should educate himself first. Don't have much time? No problem. Invest in mutual funds by creating a weekly or monthly routine.

He provides more than 20 rules and recommendations but the ones that made an impression on me were:

  1. Never trade without a stop-loss order 
  2. Never take advice from a broker
  3. Never take a tip from a friend
  4. Never let a winning trade go to a loss
  5. Never buy any stock because it can't go any lower

All my life I though stock brokers were experts in the markets and here's a guy telling me not to trust them making decisions with my money. This was the first time that I understood that stock brokers were actually sales people who made money in commissions and most of them had no clue about picking stocks.

While the book mostly covers Mutual Funds it also has a chapter about Stocks. It recommends that the average investor should concentrate in mutual funds instead of stocks. But there's a catch!!! If you want to buy individual stocks you need to educate yourself even more. It goes further and recommends some books to start the journey. One of these books was Trade Your Way to Financial Freedom by Van K. Tharp which I believe is the first book any aspiring trader should read.

And there you have it. The first book I read about the stock market. The author is very vocal and has an unorthodox style but I guarantee you'll learn a few things.