12 Timeless Rules of Investing
1. An attempt at making a quick buck often leads to losing much of that buck.
• The people who suffer the worst losses are those who over-reach.
• If the investment sounds too good to be true, it is.
• The best hot tip I’ve found is “there is no such thing as a hot tip.”
2. Don’t let a small loss become large.
• Don’t keep losing money just to “prove you are right.”
• Never throw good money after bad (don’t buy more of a loser).
• When all you’re left with is hope, get out.
3. Cut your losers; let your winners ride.
• Avoid limited-upside, unlimited-downside investments.
• Don’t fall in love with your investment; it won’t fall in love with you.
4. A rising tide raises all ships, and vice versa. So assess the tide, not the ships.
• Fighting the prevailing “trend” is generally a recipe for disaster.
• Stocks will fall more than you think and rise higher than you can imagine.
• In the short run, values don’t matter.
5. When a stock hits a new high, it’s not time to sell . . . something is going right.
• When a stock hits a new low, it’s not time to buy . . . something is going wrong.
6. Buy and hold doesn’t ALWAYS work.
• If stocks don’t seem cheap, stand aside.
7. Bear markets begin in good times. Bull markets begin in bad times.
8. If you don’t understand the investment, don’t buy it.
• Don’t be wooed. Either make an effort to understand it or say “no thanks.”
• You can’t know everything, so don’t stray far from what you know.
9. Buy value, and sell hysteria.
• Paying less than the underlying asset’s value is a proven successful strategy.
• Buying overvalued stocks has proven to underperform the market.
• Neglected sectors often offer good values.
• The “popular” sectors are often overvalued.
10. Investing in what’s popular never ends up making you any money.
• Avoid popular stocks, fad industries and new ventures.
• Buy an investment when it has few friends.
11. When it’s time to act, don’t hesitate.
• Once you’re in, be patient and don’t be rattled by fluctuations.
• Stick with your plan . . . but when you make a mistake, don’t hesitate.
• Learn more from your bad moves than your good ones.
12. Expert investors care about risk; novice investors shop for returns.
• If you focus on the risks, the returns will eventually come for you.
• If you focus on the returns, the risks will eventually come for you.
12 Timeless Rules of Investing
By Dr. Steve Sjuggerud, President, Investment U
"Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again."
– John Maynard Keynes, Tract on Monetary Reform
- Economists and fundamental analysts often miss cycle turns.
- There’s always another recession — and expansion — coming (eventually).
- Learn to separate hand-wringing permabears from credible commentators.
If you have been listening to the financial press recently, you might be shocked (shocked!) to learn that inflation has been increasing and the economy is slowing.
You don’t say?
Of course, readers aren’t just now discovering that this economy has been suffering from inflationary pressures for more than two years, as a chart of the CRB shows.
It’s the same with GDP. Follow the numbers: The third-quarter 2003 number was 7.8% (originally reported as almost 9%), the next quarter’s was 4.2% (originally 6%+) and 2004′s quarterly data came in at 4.5%, 3.3%, 4.0% and 3.8%.
This week, we learned the first quarter of 2005′s number of 3.1% was way below consensus expectations. While some will tell you that 3%+ GDP growth is pretty decent, it’s the trend of waning momentum that is the issue. An early mentor of mine used to admonish traders to not look at the photo, but to watch the full movie instead.
So much for the idea of kinda-sorta-eventually-efficient markets hypothesis.
Slowing GDP and rising inflation have been discussed on this site for over a year now. The investing issue with macroeconomic concerns is not the actual data, but how — and when — that data affects psychology. It’s a question of timing. The commentators who are first now discovering weak GDP and inflationary pressures are not much help to you once the ocean is flat again.