Apparently, the rules are there to be broken. However, in investing, some rules are usually not worth breaking. In this article, I would like to introduce you to 20 rules, the application of which, in my opinion, significantly increases the chances of investment success.
The most important principles
- Rule No. 1: never lose money. Rule No. 2: Never Forget Rule No. 1 (Warren Buffett)
It may sound trivial, but it is worth emphasizing avoiding losses. It is known that it will not always be successful. It is important that the transaction is preceded by an in-depth analysis and determination of the expected effect and the maximum acceptable loss.
- It’s better to lose an opportunity than money
There is always an opportunity on the market. Opportunities come and go. We won’t catch everyone and it’s not even worth trying. All we have to do is catch one. On the other hand, getting money is difficult as a rule. You have to work hard, devote your time and effort. That is why money is more valuable than opportunity.
- Money is made by sitting, not trading. It Takes Time to Make Money (Jesse Livermore)
This is an extension of the old rule: let profits grow. However, it is difficult to “sit still” in an investment that has brought us 50%, 100% or maybe even 200%. This is a mistake, because such an investment can bring us even four-digit rates of return in the long run. It is enough to “sit in it”.
- Investing is not about beating others at their game. It’s about controlling yourself in your own game. (Benjamin Graham)
Investing is not a race, but rather a lonely expedition to the top. We shouldn’t care what others do or what results they achieve. The investor should care about his plan, goals and his own achievements. Focusing on others will not help at all.
- The price is what you pay. Value is what you get (Warren Buffett)
Many people know about prices – this is something that everyone sees in the quotation table. However, few know the true value of what is listed. The market is not efficient and the price=value condition does not always apply. But market inefficiencies do not last forever, and in the long run, prices follow value.
- You Need to Know What You Own and Why You Own It (Peter Lynch)/Don’t Invest in a Business You Don’t Understand (Warren Buffett)
A good investor has done his “homework”. He knows how and under what conditions his investment earns and in which he loses money. If you don’t know this, find out. And only then make a decision to take a position (*does not apply to AT followers).
- Investing should be as exciting as watching paint dry or grass grow (Paul Samuelson)
The financial industry is trying to create an image of investing as a constant race, full of emotions and unexpected twists and turns. Meanwhile, healthy investing is usually calculated for the long term and, as a rule, should be boring. As the Russians say: “Tisha budesh, you are going further”.
- Only the tide shows who swam naked (Warren Buffett)
During a bull market, everyone can make money. The good economic situation favors those who leverage their capital – both on the markets and in real business. However, when the flow (bear market) comes, those without capital are left naked.
- Never Average Your Losses (Jesse Livermore)
A declining stock usually does not do so without a reason. If investors leave a business, they usually have reasons for doing so that you may not know yet. However, if you are convinced of something, cut the loss and stand aside. At most, you can buy much cheaper (or not at all) or in the worst case a little more expensive.
- Let your winners run. If you have invested $1,000, you can lose at most $1,000. But you can gain $10,000 or even $50,000 if you’re patient (Peter Lynch)
On the stock market, the potential for growth in the long term is unlimited. “Sky is the limit”. Don’t believe me? Then take a look at the long-term charts of Apple, LPP and many other quotations.