Golden Rules of Investing

Many investors young and old have their own distinct style of investing as well as different risk appetites. Books are read and blogs are followed - and hell we even have ETFs (Direxion iBillionaire Index ETF) now to track what the billionaires are buying! Ticker - IBLN

The point I'm trying to put across is this - one man's meat can be another man's poison and the market is a zero sum game whereby one's profits when the other loses. For myself, I have made losses as well and trust me, it's only through losses that one will learn and not repeat the same mistake twice. I make it a point that if I incur a loss (touchwood!) for an investment I made, I will get to the root cause of the problem and learn from it. Nobody can consistently outperform the market without proper analysis and hard work. I am still learning everyday and every tool or information I picked up along the way is a useful addition to add to my arsenal. Nobody is too old to learn nor too dumb to teach and hence, I have listed some golden rules of investing which some might find useful.

Golden Rules of Investing

 

 

1. Invest within your circle of competence and slowly read up and expand your investment knowledge.
2. Always set a stop loss (preferably 6% - 8%) of your entry price. Some might argue that since the stock became cheaper, why not average down? For me, if there are no compelling reasons for the sell-off I might buy more at a cheaper price but usually a good stock would not drop by more than 6% - 8% in a single day.
3. Do not follow the herd. - Not asking you to be contrarian here but as retail investors, we always have the last bite of the cherry and the smart money would have already profited from the market. You don't want to be the last one holding the baby.
4. Think long term.  Most investors are myopic and think of only short term gains.
5. Buy low sell high.  Now, this is crap as everyone knows this but how low is low and how high is high? Its all about perception and how we derive the true value of a certain security. Hence as long as you think its low enough for you to take a risk, buy it! And if you think it's high enough, sell it!
6. Investing is about managing risk. - Always know your margin of safety and risk appetite. Once you master the art of risk management, the returns will soon follow.
7. Patience. - Investing in a marathon, not a sprint. Investing is buying a part of a business and you are looking to grow with the company over time and make profits. If you are impatient, try forex or go to a casino.
8. Do not attempt to use leverage. Markets are volatile and unforgiving and only invest in what you can lose.
9. Guts. Stick to your conviction once you have decided to buy a stock. Do not be swayed by short term noise.
10. Set a target price. Nothing goes up forever and know when to exit. Do not let greed overcome you as every asset has it price and once it becomes expensive, you can be sure the market will price it in accordingly - soon enough.

 

 

Keep calm and continue investing!