Dennis Gartman’s Third Rule of Trading: A commentary

Dennis Gartman’s Third Rule of Trading:  “Learn to trade like a mercenary guerrilla.”

A guerilla is a warrior.  A mercenary is a warrior who fights not out of loyalty or patriotism but for money and profit.  So one would assume that Gartman is saying not to stand by a company that you like, nor a trading strategy, if its not working.  Be flexible, because you’re in it not to prove a point but simply to make money.  So he writes, “We must indeed learn to fight/invest on the winning side, and we must be willing to change sides immediately when one side has gained the upper hand.”

I’ve read other financial writers that say that people are often irrationally loyal to a company whose stock they invested in.  My mother-in-law told me once that she thought it was basically immoral to short a stock, like you were betting for the downfall of a company or something.  Regent College professor Paul Williams feels that one of the main problems of the market place today is the disconnection between the people–creditors, companies and clients alike; indeed, the stock market is one big anonymous place where traders can determine the ultimate fate of a company, sometimes in a matter of minutes, and that is all done outside of relationships with the other stakeholders, the workers and the management that may be ruined in the process.  And yet that is the system.  So I suggest that Gartman is correct.  The anonymity of the market means that I can make the decisions that support my own solvency as opposed to what is going to help the companies whose stock I decide to buy or sell.  I am indeed a mercenary ready to switch sides.  This anonymity leads to the greater efficiency–and yes, perhaps, the brutality–of the market; decisions can be made not out of emotion, personal relationships, tribal loyalties, politics, patriotism or idealism, but simply because they are financially viable.  This means that if Nortel, Enron, or BreX go down the tubes, I don’t have to go down with them, but I sell them and find something better to invest in–and hopefully, I do it before it is too late.  This efficiency ultimately is good, in my view, and leads to great prosperity because the winners are the best companies and the losers are not viable.  If you want a road to mediocrity and poverty, then create a system that rewards losers and punishes the successful (such as socialism or bailouts).

I made the decision in 2008 to sell my shares of Microsoft.  Yet my sister works for Microsoft.  I didn’t tell her about my decision to sell, and we are still talking to one another.  Isn’t the anonymity of the market wonderful?

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