15 Rules Every Investor Needs To Learn
Follow these to the letter to guarantee success:
Follow these to the letter to guarantee success:
1. Be patient
Patience is the silent millionaire maker
However, humans are inherently impatient, especially when it comes to money
We want it here and now, and this is not how investing works.
Facts: The longer you hold, the higher your chances of positive returns (see image)
Patience is the silent millionaire maker
However, humans are inherently impatient, especially when it comes to money
We want it here and now, and this is not how investing works.
Facts: The longer you hold, the higher your chances of positive returns (see image)
2. Keep it simple
Most people lose money in the stock market because they overcomplicate their strategy
You can try dividend investing, growth stock investing, swing trading, options plays and forex all at once. But you won't succeed
Pick one strategy. Perfect it. Move on.
Most people lose money in the stock market because they overcomplicate their strategy
You can try dividend investing, growth stock investing, swing trading, options plays and forex all at once. But you won't succeed
Pick one strategy. Perfect it. Move on.
3. Don't diworsify
The most common error I see investors make: diworsification.
They're holding 40 - 50+ companies. They can't keep up with them & their capital is diluted
If you're starting out & have limited capital, concentrate on <10 high-conviction positions & scale
The most common error I see investors make: diworsification.
They're holding 40 - 50+ companies. They can't keep up with them & their capital is diluted
If you're starting out & have limited capital, concentrate on <10 high-conviction positions & scale
4. Don't panic sell/buy
Top tip: Write down your investment strategy, goal and timeline
Each time you're about to buy/sell a stock, refer back to this and see if it aligns with what you wrote down
If not, it's likely that you're acting on emotion
Top tip: Write down your investment strategy, goal and timeline
Each time you're about to buy/sell a stock, refer back to this and see if it aligns with what you wrote down
If not, it's likely that you're acting on emotion
5. Don't fall into a yield trap
If you're investing for the dividend, the yield is not the only thing to consider
Check into these:
β Net income
β Pay-out ratio
β Revenue growth
β Assets vs. Liabilities
You want to ensure that dividend is reliable & sustainable
If you're investing for the dividend, the yield is not the only thing to consider
Check into these:
β Net income
β Pay-out ratio
β Revenue growth
β Assets vs. Liabilities
You want to ensure that dividend is reliable & sustainable
6. Keep an emergency fund!
Without an emergency fund, you may be forced to sell off some of your investments to cover unexpected life expenses such as medical bills, house or car maintenance costs.
This will put a serious dent in your compounding.
Aim for 3 months expenses
Without an emergency fund, you may be forced to sell off some of your investments to cover unexpected life expenses such as medical bills, house or car maintenance costs.
This will put a serious dent in your compounding.
Aim for 3 months expenses
7. You can't (perfectly) time the market
The thread below explores this in depth
Bottom line: even if you could time the exact lows of the market, DCA (Dollar cost averaging) still wins
Keep buying until the fundamentals deteriorate
The thread below explores this in depth
Bottom line: even if you could time the exact lows of the market, DCA (Dollar cost averaging) still wins
Keep buying until the fundamentals deteriorate
8. A low share price β cheap
A company's share price depends on the number of shares in circulation
Company A with a share price of $3,000 and 1M shares in circulation is has a lower market cap than Company B whose share price is $300 with 100M shares in circulation
A company's share price depends on the number of shares in circulation
Company A with a share price of $3,000 and 1M shares in circulation is has a lower market cap than Company B whose share price is $300 with 100M shares in circulation
9. Don't be afraid to average up
If you have a winning stock on your hands and you were fortunate enough to get in early
Don't miss out on additional gains if your research suggests the company will continue to grow just to protect your cost basis
If you have a winning stock on your hands and you were fortunate enough to get in early
Don't miss out on additional gains if your research suggests the company will continue to grow just to protect your cost basis
10. It pays to be pragmatic!
You're either in the business of making money, or you're in the business of losing money
Don't get attached to a business
Always go back to the underlying fundamentals
If they're strong, buy it. If they deteriorate, sell it and don't look back
You're either in the business of making money, or you're in the business of losing money
Don't get attached to a business
Always go back to the underlying fundamentals
If they're strong, buy it. If they deteriorate, sell it and don't look back
11. Stock picking cannot be quantified
If it was, anyone with a computer could make a fortune
This is also true for charting
If it was as accurate as some would have you believe
They would be billionaires
The math you need to succeed with investing is learned in 5th grade
If it was, anyone with a computer could make a fortune
This is also true for charting
If it was as accurate as some would have you believe
They would be billionaires
The math you need to succeed with investing is learned in 5th grade
12. Out of sight, out of mind
The more you check on your investments
The more you'll be swayed by the short term movements of the stock price
This makes you far more likely to make a bad, emotionally driven decision
The more you check on your investments
The more you'll be swayed by the short term movements of the stock price
This makes you far more likely to make a bad, emotionally driven decision
13. Volatility is normal
Markets fluctuate because volatility is normal
If you had picked the best-performing stocks of the last 20 years
Your portfolio would drop 40%+ multiple times
Some would drop as much as 70%
Regardless, you'd still have averaged 29% ROI/year
Markets fluctuate because volatility is normal
If you had picked the best-performing stocks of the last 20 years
Your portfolio would drop 40%+ multiple times
Some would drop as much as 70%
Regardless, you'd still have averaged 29% ROI/year
14. It's about balance
- Getting a great company at a great price
vs
- Paying a short-term premium for quality
Waiting for that high-quality stock to 'come down' so you can buy it can be costly!
If you believe the company will execute for years to come, just buy & hold
- Getting a great company at a great price
vs
- Paying a short-term premium for quality
Waiting for that high-quality stock to 'come down' so you can buy it can be costly!
If you believe the company will execute for years to come, just buy & hold
15. Know your timeline
Your time horizon drives the level of risk you should take
Also, donβt invest money you'll need in the next 5 years
The last thing you want is to interrupt your compounding & sell your shares during a pullback
Your time horizon drives the level of risk you should take
Also, donβt invest money you'll need in the next 5 years
The last thing you want is to interrupt your compounding & sell your shares during a pullback
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