We approach markets backwards. The first thing we ask is not what can we make, but how much can we lose. We play a defensive game.

~ Larry Hite

I have pledged -- to you, the rating agencies, and myself -- to always run Berkshire with more than ample cash. We never want to count on the kindness of strangers in order to meet tomorrow's obligations. When forced to choose, I will not trade even a night's sleep for the chance of extra profits.

~ Warren Buffett

The investor's chief problem -- and even his worst enemy -- is likely to be himself.

~ Benjamin Graham

I'd say that my investment philosophy is that I don't take a lot of risk, I look for opportunities with tremendously skewed reward-risk opportunities. Don't ever let them get into your pocket -- that means there's no reason to leverage substantially. There's no reason to take substantial amounts of financial risk ever, because you should always be able to find something where you can skew the reward risk relationship so greatly in your favor that you can take a variety of small investments with great reward risk opportunities that should give you minimum draw down pain and maximum upside opportunities.

~ Paul Tudor Jones

I recognize that I may be wrong. This makes me insecure. My sense of insecurity keeps me alert, always ready to correct my errors. I do this on two levels. On the abstract level, I have turned the belief in my own fallibility into the cornerstone of an elaborate philosophy. On a personal level, I am a very critical person who looks for defects in myself as well as in others. But, being so critical, I am also quite forgiving. I couldn't recognize my mistakes if I couldn't forgive myself. To others, being wrong is a source of shame; to me, recognizing my mistakes is a source of pride. Once we realize that imperfect understanding is the human condition, there is no shame in being wrong, only in failing to correct our mistakes.

~ George Soros

Good trading is a peculiar balance between the conviction to follow your ideas and the flexibility to recognize when you have made a mistake. You need to believe in something, but at the same time, you are going to be wrong a considerable number of times. The balance between confidence and humility is best learned through extensive experience and mistakes.

~ Michael Steinhardt

Let's see if I have this right: You'd rather avoid the feeling of looking stupid by deliberately locking in a guaranteed small loss today, for the more likely chance of feeling despondent when you lose a larger portion of your capital.

That leads to inaction on your part, and you sit in disgust watching the market take away more of your equity, like a bully. Then you talk about how the market is fixed or rigged, when all the while you had the power to get out of a losing position, but you chose not to. You chose not to do the right thing because you were afraid to feel certain feelings. For the record, you do have the right to not participate, but that's for when you're unsure of what position to initiate, not when it comes to protecting your equity. When you smell smoke, assume that it's a five-alarm fire.

~ Michael Martin

As I have earlier noted, the most important things in life and in business can't be measured. The trite bromide 'If you can measure it, you can manage it' has been a hindrance in the building a great real-world organization, just as it has been a hindrance in evaluating the real-world economy. It is character, not numbers, that make the world go 'round. How can we possibly measure the qualities of human existence that give our lives and careers meaning? How about grace, kindness, and integrity? What value do we put on passion, devotion, and trust? How much do cheerfulness, the lilt of a human voice, and a touch of pride add to our lives? Tell me, please, if you can, how to value friendship, cooperation, dedication, and spirit. Categorically, the firm that ignores the intangible qualities that the human beings who are our colleagues bring to their careers will never build a great workforce or a great organization.

~ John Bogle

I am a better investor because I am a businessman, and a better businessman because I am no investor.

~ Warren Buffett

You have to love what you do, whether it be gardening, hairdressing, etc. When you love it, then the money follows. Even if it doesn't, you will still be happy. Being happy and poor is better than being unhappy and poor.

~ Jim Rogers

One key lesson is to acknowledge the complexity of the world and resist the impression that you easily understand it. People are too quick to accept conventional wisdom, because it sounds basically true and it tends to be reinforced by both their peers and opinion leaders, many of whom have never looked at whether the facts support the received wisdom. It's a basic fact of life that many things "everybody knows" turn out to be wrong.

How could an investor use that? The uncertainty involved in predicting complex events would argue for some level of diversification and a greater focus on hedging. At the same time, the fact that people tend toward overconfidence and follow conventional wisdom should provide opportunity for those taking contrarian positions against that. The trick, of course, is to have concrete justification for why the crowd is wrong.

~ Robert Shiller

I have a combination of laid-back competitiveness on the field of play. You see that with some athletes that come in with earphones on and are hanging with the music. And then when you get them on the field, they're focused and they're fierce. So in the outside world, I'm that easygoing person. But if I'm on the field, I wanna win. And we win a lot.

~ David Tepper

To doubt everything or to believe everything are two equally convenient solutions; both dispense with the necessity of reflection.

~ Henri Poincare

Laziness is a secret ingredient that goes into failure. But it's only kept a secret from the person who fails.

~ Robert Half

First, you've got to get all the facts, and then you've got to face the facts. Not pipe dreams.

~ Paul Cabot

Time is the scarcest resource, and unless it is managed, nothing else can be managed.

~ Peter Drucker

Every adversity, every failure, every heartache carries with it the seed of an equal or greater benefit.

~ Napoleon Hill

Throughout my financial career, I have continually witnessed examples of other people that I have known being ruined by a failure to respect risk. If you don't take a hard look at risk, it will take you.

~ Larry Hite

The market does not know if you are long or short and could not care less. You are the only one emotionally involved with your position. The market is just reacting to supply and demand and if you are cheering it one way, there is always somebody else cheering it just as hard that it will go the other way.

~ Marty Schwartz

They trade too much. They don't pick their spots selectively enough. When they see the market moving, they want to be in on the action. So, they end up forcing the trade rather than waiting patiently. Patience is an important trait many people don't have.

~ Tom Baldwin

Genuine confidence comes from hard work and hard experience: putting in the time and effort to achieve mastery and getting knocked down enough times to know -- deep in your soul -- that you have what it takes to succeed.

~ Brett Steenbarger

To achieve long-term success over many financial market and economic cycles, observing a few rules is not enough. Too many things change too quickly in the investment world for that approach to succeed. It is necessary instead to understand the rationale behind the rules in order to appreciate why they work when they do and don't when they don't.

~ Seth Klarman

I insist on a lot of time being spent, almost every day, to just sit and think. That is very uncommon in American business. I read and think. So I do more reading and thinking, and make less impulse decisions than most people in business. I do it because I like this kind of life.

~ Warren Buffett

As I think back over the years, I have been guided by four principles for decision making. First, the only certainty is that there is no certainty. Second, every decision, as a consequence, is a matter of weighing probabilities. Third, despite uncertainty we must decide and we must act. And lastly, we need to judge decisions not only on the results, but on how they were made.

~ Robert Rubin

The most important rule of trading is to play great defense, not great offense. Every day I assume every position I have is wrong. I know where my stop risk points are going to be. I do that so I can define my maximum possible drawdown. Hopefully, I spend the rest of the day enjoying positions that are going in my direction. If they are going against me, then I have a game plan for getting out.

~ Paul Tudor Jones

There are just four kinds of bets. There are good bets, bad bets, bets that you win, and bets that you lose. Winning a bad bet can be the most dangerous outcome of all, because a success of that kind can encourage you to take more bad bets in the future, when the odds will be running against you. You can also lose a good bet, no matter how sound the underlying proposition, but if you keep placing good bets, over time, the law of averages will be working for you.

~ Larry Hite

Most behavior is habitual, and they say that the chains of habit are too light to be felt until they are too heavy to be broken.

And there is no question about it. I see people with these self destructive behavior patterns, at my age or even ten or twenty years younger, and they really are entrapped by them.

~ Warren Buffett

Win or lose, everybody gets what they want out of the market. Some people seem to like to lose, so they win by losing money.

I know one trader who seems to get in near the start of every substantial bull move and works his $10 thousand up to about a quarter of a million in a couple of months. Then he changes his personality and loses it all back again. This process repeats like clockwork. Once I traded with him, but got out when his personality changed. I doubled my money, while he wiped out as usual. I told him what I was doing, and even paid him a management fee. He just couldn't help himself. I don't think he can do it any differently. He wouldn't want to. He gets a lot of excitement, he gets to be a martyr, he gets sympathy from his friends, and he gets to be the center of attention. Also, possibly, he may be more comfortable relating to people if he is on their financial plane. On some level, I think he is really getting what he wants.

I think that if people look deeply enough into their trading patterns, they find that, on balance, including all their goals, they are really getting what they want, even though they may not understand it or want to admit it.

~ Ed Seykota

If trading is your life, it is a torturous kind of excitement. But if you are keeping your life in balance, then it is fun. All the successful traders I've seen that lasted in the business sooner or later got to that point. They have a balanced life; they have fun outside of trading. You can't sustain it if you don't have some other focus. Eventually, you wind up over trading or getting excessively disturbed about temporary failures.

~ Michael Marcus

Gut feel is important. If ignored, it may come out in subtle ways by coloring your logic. It can be dealt with through meditation and reflection to determine what's behind it. If it persists, then it might be a valuable subconscious analysis of some subtle information. Otherwise, it might be a dangerous sublimation of an inner desire for excitement and not reflect market conditions. Be sensitive to the subtle differences between "intuition" and "into wishing".

~ Ed Seykota

The speculator's chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. In speculation when the market goes against you, you hope that every day will be the last day -- and you lose more than you should had you not listened to hope -- to the same ally that is so potent a success-bringer to empire builders and pioneers, big and little. And when the market goes your way you become fearful that the next day will take away your profit, and you get out -- too soon. Fear keeps you from making as much money as you ought to. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit. It is absolutely wrong to gamble in stocks the way the average man does.

~ Jesse Livermore

How you trade, what you trade, and the frequency of the trades you make all come down to who you are as a person, not what you know about a specific financial instrument. That's the gaping hole in the training of traders. If you take away anything from this book, make it these points:

1. Trading profitably is about mathematical expectation.

2. Knowing yourself is more important than what you know.

Business school doesn't address either of these. Who you are, not what you know, determines how well you do.

~ Michael Martin

Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest. You can't win until you do this.

~ Dave Ramsey

Markets can remain irrational a lot longer than you and I can remain solvent.

~ A. Gary Shilling

Doubt is not a pleasant condition, but certainty is an absurd one.

~ Voltaire

First, I would say that risk management is the most important thing to be well understood. Undertrade, undertrade, undertrade is my second piece of advice. Whatever you think your position ought to be, cut it at least in half. My experience with novice traders is that they trade three to five times too big. They are taking 5 to 10 percent risks on a trade when they should be taking 1 to 2 percent risks.

~ Bruce Kovner

Sometimes it's time to make money, sometimes it's time not to lose money. Last year was a time not to lose money; we'll see what this year brings.

~ David Tepper

I was well qualified to deal with existential uncertainty. If I had to sum up my qualifications, I would use one word: survival. When I was an adolescent, the Second World War gave me a lesson in survival that I have never forgotten. I was fortunate enough to have a father who was a grand master in the art of survival, having lived through the Russian revolution as an escaped prisoner of war. Under his tutelage the holocaust in Hungary served as an advanced course at a tender age. I have no doubt that my experiences as an adolescent played a major role in my subsequent success as a hedge fund manager. So did my conceptual framework.

~ George Soros

Never invest in a company without understanding its finances. The biggest losses in stocks come from companies with poor balance sheets. Always look at the balance sheet to see if a company is solvent before you risk your money on it.

~ Peter Lynch

Just out of our respective graduate schools, my friend Warren Buffett and I entered the business world to find huge, predictable patterns of extreme irrationality. These irrationalities were obviously important to what we wanted to do, but our professors never mentioned them. Understanding the problem of irrationalities was not easy... I came to study the psychology of human misjudgement almost against my will: I rejected it until I realized that my attitude was costing me a lot of money and reduced my ability to help everything I loved.

~ Charlie Munger

You also have to have the knowledge to enable you to make a very general estimate about the value of the underlying business. But you do not cut it close. That is what Ben Graham meant by having a margin of safety. You don't try and buy businesses worth $83 million for $80 million. You leave yourself an enormous margin. When you build a bridge, you insist it can carry thirty thousand pounds, but you only drive ten-thousand-pound trucks across it. And that same principle works in investing.

~ Warren Buffett

You have to be okay with wins and losses. You can't just be looking for the wins and, when the losses happen, you can't buy more and more because you're sure it's going to bounce. We call that revenge trading.

~ Josh Brolin

Psychology is probably the most important factor in the market -- and the one that is least understood. There's constant overreaction in the market. Low-P/E stocks are constantly priced too cheaply over long periods of time, and higher-P/E stocks are priced too dearly. People like exciting stories; they don't like boring companies. That is the normal cause of investor overreaction.

~ David Dreman

My philosophy is that all stocks are bad. There are no good stocks unless they go up in price. If they go down instead, you have to cut your losses fast. The secret for winning in the stock market does not include being right all the time. In fact, you should be able to win even if you are right only half the time. The key is to lose the least amount of money possible when you are wrong. I make it a rule never to lose more than a maximum of 7 percent on any stock I buy. If a stock drops 7 percent below my purchase price, I will automatically sell it at the market -- no second-guessing, no hesitation.

Some people say, "I can't sell that stock because I'd be taking a loss." If the stock is below the price you paid for it, selling doesn't give you the loss; you already have it. Letting losses run is the most serious mistake made by most investors. The public doesn't really understand the philosophy of cutting losses quickly. If you don't have a rule like cutting a loss at 7 percent, then in bear markets like 1973-1974, you can lose 70 or 80 percent on your holdings. I have seen people go bankrupt in that type of situation. If you aren't willing to cut your losses short, then you probably should not buy stocks. Would you drive your car without brakes?

~ William O'Neil

That cotton trade was almost the deal-breaker for me. It was at that point that I said, "Mr. Stupid, why risk everything on one trade? Why not make your life a pursuit of happiness rather than pain?"

That was when I first decided I had to learn discipline and money management. It was a cathartic experience for me, in the sense that I went to the edge, questioned my very ability as a trader, and decided that I was not going to quit. I was determined to come back and fight. I decided that I was going to become very disciplined and businesslike about my trading.

~ Paul Tudor Jones

A cocksure approach to investing will lead, probably sooner than later, to disappointment if not outright disaster. Even if we can identify an unchanging handful of investing principles, we cannot apply these rules to an unchanging universe of investments or an unchanging economic and political environment. Everything is in a constant state of change, and the wise investor recognizes that success is a process of continually seeking answers to new questions.

~ John Templeton

The only way to avoid mistakes is not to invest -- which is the biggest mistake of all. So forgive yourself for your errors. Don't become discouraged, and certainly don't try to recoup your losses by taking bigger risks. Instead, turn each mistake into a learning experience. Determine exactly what went wrong and how you can avoid the same mistake in the future.

The investor who says, "This time is different," when in fact it's virtually a repeat of an earlier situation, has uttered among the four most costly words in the annals of investing.

The big difference between those who are successful and those who are not is that successful people learn from their mistakes and the mistakes of others.

~ John Templeton

There should be a respect for the person on the other side of the trade. Always ask yourself: Why does he want to sell? What does he know that I don't? Finally, you have to be intellectually honest with yourself and others. In my judgment, all great traders are seekers of truth.

~ Michael Steinhardt

When you go through a losing streak all the self-doubts come out and you do get very reluctant to pull the trigger. There is nothing you can do that is right. Just every single thing you do is wrong. That is something you just have to learn to control. You really have to learn how to control that fear. You have to feel the pain of a bad trade, or a wrong trade. If you don't, and are numb to it, then it's over. So you have to know what it's like to feel pain, but you can't be afraid of it.

~ Bill Lipschutz

Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I'm getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis. For example, if the market is in the midst of a trading range, it makes no sense to put your stop within that range, since you are likely to be taken out. I always place my stop beyond some technical barrier.

~ Bruce Kovner

There is a great deal of hype attached to technical analysis by some technicians who claim that it predicts the future. Technical analysis tracks the past; it does not predict the future. You have to use your own intelligence to draw conclusions about what the past activity of some traders may say about the future activity of other traders.

For me, technical analysis is like a thermometer. Fundamentalists who say they are not going to pay any attention to the charts are like a doctor who says he's not going to take a patient's temperature. But, of course, that would be sheer folly. If you are a responsible participant in the market, you always want to know where the market is -- whether it is hot and excitable, or cold and stagnant. You want to know everything you can about the market to give you an edge.

Technical analysis reflects the vote of the entire marketplace and, therefore, does pick up unusual behavior. By definition, anything that creates a new chart pattern is something unusual. It is very important for me to study the details of price action to see if I can observe something about how everybody is voting. Studying the charts is absolutely crucial and alerts me to existing disequilibria and potential changes.

~ Bruce Kovner

Many investors make the mistake of trying too hard -- striving to get more from their investments than those investments can produce, typically by borrowing on margin to increase leverage and thus courting serious disappointment -- is all too often eventually expensive because taking too much risk is too much risk.

~ Charles D. Ellis

The biggest challenge in the stock market is not Mr. Market or Mr. Value. The biggest challenge is neither visible nor measurable; it is hidden in the emotional incapacities of each of us as investors. Investing, like parenting teenagers, benefits from calm, patient persistence with a long-term perspective and constancy to purpose. That's why "know thyself" is the cardinal rule in investing.

The hardest work in investing is not intellectual; it's emotional. Being rational in an irrational, short-term environment is not easy, particularly with Mr. Market always trying to trick you into making changes. The hardest work is not figuring out the optimal investment policy; it's sustaining a long-term focus -- particularly at market highs or market lows -- and staying committed to your optimal investment policy.

~ Charles D. Ellis

The market does reflect the available information, as the professors tell us. But just as the funhouse mirrors don't always accurately reflect your weight, the markets don't always accurately reflect that information. Usually they are too pessimistic when it's bad, and too optimistic when it's good.

~ Bill Miller

Stocks, markets, and money managers' performance are subject to enantiodromia, the tendency of things to swing to their opposites. Those swings can have wide arcs, and unsustainable trends can sometimes persist beyond the ability of one to endure. That is why most investors are out of stocks at the bottom -- they are tired of losing money -- and fully invested at the top -- they believe their good performance will persist despite their stocks or the market's being overpriced.

~ Bill Miller

People who excel at book learning tend to call up from memory what they have learned in order to follow stored instructions. Others who are better at internalized learning use the thoughts that flow from their subconscious. The experienced skier doesn't recite instructions on how to ski and then execute them; rather, he does it well "without thinking," in the same way he breathes without thinking. Understanding these differences is essential. Remember that experience creates internalization. Doing things repeatedly leads to internalization, which produces a quality of understanding that is generally vastly superior to intellectualized learning.

~ Ray Dalio

Ask yourself whether you have earned the right to have an opinion. Opinions are easy to produce, so bad ones abound. Knowing that you don't know something is nearly as valuable as knowing it. The worst situation is thinking you know something when you don't.

~ Ray Dalio

I stress-tested my opinions by having the smartest people I could find challenge them so I could find out where I was wrong. I never cared much about others' conclusions -- only for the reasoning that led to these conclusions. That reasoning had to make sense to me. Through this process, I improved my chances of being right, and I learned a lot from a lot of great people.

~ Ray Dalio

Though I've said it before, it's worth saying again: I understand that recognizing harsh realities can be extremely painful. But I've learned that if you can stare hard at your problems, they almost always shrink or disappear, because you almost always find a better way of dealing with them than if you don't face them head on. The more difficult the problem, the more important it is that you stare at it and deal with it. After seeing how effectively facing reality -- especially your problems, mistakes and weaknesses -- works, you will become comfortable with it and won't want to operate any other way. I also believe that one of the best ways of getting at truth is reflecting with others who have opposing views and who share your interest in finding the truth rather than being proven right.

~ Ray Dalio

I believe that having the discipline to follow your rules is essential. Without specific, clear, and tested rules, speculators do not have any real chance of success. Why? Because speculators without a plan are like a general without a strategy, and therefore without an actionable battle plan. Speculators without a single clear plan can only act and react, act and react, to the slings and arrows of stock market misfortune, until finally they are defeated.

~ Jesse Livermore

I learned that you could be right on a market and still end up losing if you use excessive leverage.

~ Stanley Druckenmiller

[On the most significant thing that he learnt from George Soros] It's not whether you're right or wrong that's important, but how much money you make when you're right and how much you lose when you're wrong.

~ Stanley Druckenmiller

Sometimes it's difficult to interpret the markets, so we're not going to play a winning hand every day. Our goal is not to outperform all the time -- that's not possible. We want to outperform over time.

~ John Paulson

Short sellers are the professional skeptics who look past the hype to gauge the true value of a stock.

~ Jim Chanos

When the accounting gets murky, people tend to shy away from rigorous analysis and rely on management and just take earnings at face value. Therein lies the opportunity.

~ Jim Chanos

[On a remark that a scandal-ridden firm had a reputable auditor signing off on its reports] They ALL have reputable audit firms. That's one thing I want you to take away from this course: every big fraud had a great audit firm behind it.

~ Jim Chanos

We try to be very respectful of the unpredictability of markets. We try to at all times at least assume that the world is not being properly run.

~ Paul Singer

Investing is an art, more so than a science. And for me, what I get paid for is managing the 'dark art,' if you will, of risk management and trying to be a visionary and having a dark vision at all times about what can go wrong.

~ Paul Singer

The stupid thing we all do is to get more and more bullish as the market goes up and be frightened out of our wits when it goes down.

~ Philip Carret

The contrary opinion school has a great deal of validity. When everyone is bullish, why, you should be very concerned.

~ Philip Carret

[On why don't other organizations undertake a similar system that takes emotions out of proposing and vetting investment ideas] They fall down in a lot of ways. First, they put somebody in charge of risk; that's a person. ... They believe in delegating this to someone who is setting this up as a profit center. Worse, they actually don't understand how people behave. And so, it's not distributed risk assessment.

~ Stephen Schwarzman

No one can see ahead three years, let alone five or ten. Competition, new inventions - all kinds of things - can change the situation in twelve months.

~ Thomas Rowe Price, Jr.

You hear these people on television saying the market has told them this and that -- well, the market has never spoken to me.

~ Julian Robertson

One needs to contrast continually the mental model that one has built with new evidence, to see if it needs adjustment. The model is never complete. You are dealing with something that is evolving, so you need to be alert to indications that the ingredients of your model may be rearranging themselves. Then, there is a problem of sources. Very few people think in the same terms as the foreign investor. Someone with his own local fund may think in a similar way, but stockbrokers and bankers have different concerns, and another orientation.

~ Mark Lightbown

Many people have an innate drive to achieve their personal best, to develop their abilities to the fullest. This drive, along with the pleasure of the game and the lure of money, propels traders to challenge the markets.

Good traders tend to be hardworking and shrewd people, open to new ideas. The goal of a good trader, paradoxically, is not to make money. His goal is to trade well. If he trades right, money follows almost as an afterthought. Successful traders keep honing their skills as they try to reach their personal best.

A professional trader from Texas invited me to his office and said: "If you sit across the table from me while I day-trade, you won't be able to tell whether I am $2,000 ahead or $2,000 behind on that day." He has risen to a level where winning does not elate him and losing does not deflate him. He is so focused on trading right and improving his skills that money no longer influences his emotions.

The trouble with self-fulfillment is that many people have self-destructive streaks. Accident-prone drivers keep destroying their cars, and self-destructive traders keep destroying their accounts. Markets offer vast opportunities for self-sabotage, as well as for self-fulfillment. Acting out your internal conflicts in the marketplace is a very expensive proposition.

Traders who are not at peace with themselves often try to fulfill their contradictory wishes in the markets. If you don't know where you are going, you'll wind up somewhere you never wanted to be.

~ Alexander Elder

The master trader puts much emphasis on controlling losses. When you keep losses to a minimum by concentrating on ways of reducing losses, you increase the chances of adhering to your strategies and hitting your target numbers. This is important to do, not merely to provide sufficient capital to continue to trade, but also because the psychological effects of losing can hurt your motivation to win. Losses can prompt gambling behavior or self-destructive trading, where the trader throws caution to the winds and keeps looking to recover all the losses in a few high-risk bets. Losses stay longer in memory than do the satisfactory feelings associated with winning, and play a bigger part in influencing traders to act defensively, to cover up, to compensate. Few people do things to compensate for successes.

Because of the pain of loss, people are willing to take greater risks to reduce that pain and to avert it than they are willing to do to maximize their profitability. They are less motivated by profitability and success than by aversion to loss, and therefore they are more likely to take high-risk bets when they are at risk of losing.

~ Ari Kiev