Definition

Given the current market conditions, I think it is appropriate to define and explain the namesake of this blog. The term “Ever-Liquid Account” was a phrase coined in Gerald Loeb’s book the “Battle for Investment Survival”. For those of you not familiar with Loeb, he was a legendary trader who got his start the early 1920’s and made a fortune in the stock market over a long and fabled career. The “Ever-Liquid Account” is essentially a money management and strategy for trading stocks.

Loeb suggests the following:

1. A major component of stock market success is predicated on the ability to stay completely in cash until the right market opportunity appears.
2. When an upward market trend is established, buy liquid market leaders or those stocks with the potential to become market leaders.
3. The method favors concentrated purchases and eschews diversification since the investor must have strong convictions about both the positions established along with the general trend of the market. An investor may hold up to four carefully chosen stocks.
4. This style of investing lends itself to pyramiding. This means that when a new position is established the entire stake is not bought at once. Rather, a small pilot purchase is advised and if this initial buy shows a profit then more can be bought as the price advances. The initial buy may be 1/3 to ½ of the full position. Subsequent buys may be made in additional thirds until the position is rounded out.
5. If the first full purchase shows a profit then a second position can be established in a new stock using the method above.
6. If the original purchase shows a loss it should be closed out. The stop may be anywhere from 3%-10% below the first purchase price. If a compelling new stock is found after this first loss, a new position can be started albeit with a smaller amount.
7. A limited amount of capital deployed in concentrated positions will allow the shrewd investor to outperform the market. In certain circumstances 20-25% of one’s capital may be invested in individual positions but this is the exception rather that the rule unless a compelling market event appears.

This style of investing is not easy and requires extreme patience and discipline. The main advantage of this system is that it keeps one out of weak markets by taking small losses on pilot purchases and additional funds are only deployed as prices appreciate during an uptrend.