Don’t Panic. Do This Instead.

It’s crazy how fast the mood flips.

One small dip, a couple of scary headlines, and boom—everyone thinks the world is collapsing.

But when you actually look under the hood? There are a lot of reasons to be optimistic.

That could change. Everything could change.

But even if it did, the rules of investing rarely do.

I’ve been investing professionally now for about 30 years. I’ve spent a lot of that time scared and addicted to anti-anxiety pills.

I’ve been a day trader, a venture capitalist, a hedge fund manager, I’ve invested in other hedge funds, I’ve invested in private companies, I’ve been a trader for a bank, and on and on.

I’ve written five or six books on investing and thousands of articles for the Wall Street Journal, the Financial Times, CNBC, Forbes, etc. I was a spokesperson for Fidelity.

I’ve tried every method out there.

Here’s what I learned: there are a few things that never change.

I wrote these rules down six years ago. They’re just as true today as they were back then.

When the market is crashing (like it is now), it’s always important to get back to the basics. (And don’t panic.)

A) KNOW YOUR HISTORY

Study the history of investing. The history of money. Where did it come from? When were the first exchanges created? Study all the bubbles.

Study modern investing. Why did the Great Depression occur? What was volatility like in the 1930s? In the 1960s?

(Right now, I’m reading Andrew Sorkin’s book 1929. It’s great.)

What caused the recessions in the 1970s? What caused the market to rise and then crash in the ’80s?

What were the actual bubbles in 2000 and 2006–07 that then led to massive crashes. Note: the answers are NOT “the internet” and “housing.”

What are common features in every recession? In every bear market?

Studying the history of investing is studying the history of world psychology.

The world is mentally ill. And investors take advantage of that.

B) UNDERSTAND WHAT TRENDS ARE HAPPENING IN SOCIETY

Automation, robotics, onshoring, crypto, energy, etc.

What does society need, what will it need five years from now, who is working on it?

There is a quick way to do this…

C) THE MOORE’S LAW TECHNIQUE

In 1966, Gordon Moore, one of the founders of Intel, predicted that computing power would double every 24 months.

Computing power was very tiny then. The computer that launched Apollo 11 to the moon had less power than a calculator.

But computing power has been doubling every 24 months since he made that prediction.

Investing in an industry that is doubling every X months will lead to huge wealth.

The computer/internet industry went from being in the tens of millions in value to the multiple trillions.

Some industries doubling or more every year or so: computers (still), genomics, solar power, data, AI, automation, etc.

Find as many “Moore’s Law” industries as possible, avoid the scams, and invest in the rest.

D) STATISTICS

If you can, find an easy-to-use statistics package for testing out ideas.

For instance, what usually happens if the market goes down five days in a row? Or if Microsoft goes down five days in a row? What usually happens on a Monday if Friday was down?

What happens when the VIX spikes more than X% in a day?

There are thousands of questions you can ask the data. It helps to get a feel for the market.

In 2019, we didn’t have the AI tools to do this. Now it’s EASY. Anyone can do it.

E) DON’T TRADE ON THE NEWS!!

By the time an article is in the Wall Street Journal or on CNBC, you’re the last investor to have learned the news.

F) ALWAYS ASK, “WHAT IS MY EDGE?”

You have no edge.

If you think the iPhone is great and you say, “I’m investing in Apple,” what makes you think you have an edge over the hundreds of hedge funds that have studied every phone on the market, have figured out every detail of the next five phones to be released, etc.?

You might get lucky. Or you might not.

It’s very hard for the average investor to find an edge. Warren Buffett gets an edge by doing deals directly with the company.

Big hedge funds find an edge by doing some form of insider trading or high-frequency trading where they skim dollars from you because they have wires going straight into the exchange.

Billions of dollars are spent every day subtly manipulating the market without regulators being aware of it.

Every day the market is manipulated illegally. Every day.

You don’t have an edge over those people.

How do you get an edge?

G) RESEARCH STOCKS THAT HAVE COLLAPSED

If a company misses earnings by two cents, often retail investors get scared and the stock collapses.

Ask, “Did it collapse irrationally?” This is one of the few times you might be able to get an edge.

H) DON’T IGNORE MICRO-CAPS OR SMALL STOCKS.

Stocks that are worth less than $1 billion.

These stocks are ignored by the news, they are ignored by banks, and they are often too small for the big hedge funds to research them.

They are also not in the big indices that have all the major funds following them.

Note that Warren Buffett made his first million only by investing in micro-cap stocks (look up “cigar butt stocks”).

The problem with micro-cap stocks is that many of them are either scams or are in industries with no real interest by investors.

So use the Moore’s Law technique above to find growing industries and the stocks in them. And do the research to make sure the stock is not a scam.

Even ONE RED FLAG (i.e., the CEO used to work for another company that went to zero) is enough to say, “I’m not going to invest.” NO RED FLAGS ALLOWED.

N) IMPORTANT RULE THAT NOBODY KNOWS!!

The less you invest in a company, the more you will make.

This is the most important rule on this list.

This doesn’t sound right and it doesn’t work for everyone.

But I know for me, I have a problem: If I invest a big percent of my net worth in one company, then I will obsess on it.

I won’t be able to sleep.

And as soon as it has a reasonable profit (or loss) I will get rid of it.

If I invest a SMALL amount and it starts to go up, I am more willing to sit on it for the entire ride and I will make more money.

This has happened to me again and again. The less I invest, the more I make.

I) DIVERSIFICATION IS NOT WHAT YOU THINK

Diversification 1.0 was: “Buy Exxon and Microsoft”.

One is oil and the other is tech. Now, those two stocks are no longer diversified. Most large stocks tend to move up and down as a group.

Diversification is harder now and requires more creative/structural independence, rather than just throwing in stocks + bonds or two large companies from different sectors.

REAL diversification is to play multiple strategies that are independent of each other and independent of the economy.

J) SIT ON YOUR HANDS

Some people put stop losses on a position.

This means if they buy a stock at $20, they may decide at $16 to sell it for a loss.

Don’t do that.

I’ve tested out every strategy using software I’ve written. In every case, the use of stop losses makes less money in the long run.

The key to sitting on your hands is to invest only a small amount in every investment.

The path to wealth is to have good investments that grow very big.

Instead, I put a “story stop” on my investments.

I buy because I like the story. If the story changes, I get out.

If I buy because it’s a genomics stock and I think genomics is going way up, I sell if they fail every FDA trial they are in.

K) THE AVERAGE HOLDING PERIOD IS LONGER THAN YOU THINK

Buffett said the average holding period is “forever.”

He lied.

BUT… some companies I own I will own for 5–15 years.

People say investing is like gambling. This is sort of true. But the longer you hold something, the less it is like gambling and the more it is that you researched an industry and a company and are investing in the growth of both.

It takes a long time for a small company in a small but fast growing industry to reach its full potential.

Also, if a company is growing 20–50% per year or more, where else are you going to get that kind of return on your money?

J) RISK VS. REWARD

I invest in two types of opportunities:

1) SAFE: I am very risk-averse. It’s rare an investment comes along that is “safe.”

It’s usually some situation where for various reasons I can buy shares at a discount from people who need the cash.

Or it’s in a period like 2009 where everyone is scared.

2) HIGH RISK, HIGH REWARD: I like to invest more in companies that I think I will make at least 1000% on or more.

This is why I don’t usually buy big stocks, unless under special circumstances. Maybe it goes up a little more than the market. Like 20–30% per year some years.

But it also can go down a lot. This is not good risk/reward for me even if I love the company.

There are more… but those are the basics.

And in times of uncertainty, the basics are what you need most.