This is the final part of this subject. If you missed the 1st & 2nd parts just go to the archives on the right hand side of your screen to access it. Enjoy the reading.
Understand that investor psychology exists. Implement a strategy based on avoiding the mistakes others have made.
Perseverance is a virtue above all others. Let’s now explore the ground rules for successful investing:
1. Be your own investment manager. Advisors and stockbroker can help but should not do it for you. Only you know what your temperament is, what your real needs are and only you are motivated by your own best interests. Besides who best will be in the position to make the best judgement without haven to be influenced by sales commissions. It is also more fun to do it yourself. In the words of Jack Welch “Control your own destiny or someone else will”.
2. Look for opportunities and do the opposite of what everyone else is doing. “I buy when other people are selling”. J Paul Getty. Take a contrarian view to investment markets. Warren Buffett chooses to put it this way, “Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well”.
3. To emphasise a point earlier stated, do not be put off by investment jargon. Master it instead.
4. Keep up to date through reading the financial papers and searching independent investment research websites. “Investing without research is like playing stud poker without looking at the cards”. Peter Lynch
5. Discussing investments is stimulating. Condition your mind to talk to others about investing, especially people who are more experienced and knowledgeable than you are.
6. Diversify and do not have all your eggs in one basket. Confront risk and then reduce it through spreading your investments. Haven said that it is important to note that “People who are high-level investors are not concerned about the market going up or going down because their knowledge will allow them to make money either way”. Robert Kiyosaki
7. NOW is the best time to start investing. Do not wait for the markets to improve. If the share market is filled with gloom, that is the time to buy. Warren Buffet likes to put it this way “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful”.
8. Make good quality shares the core of your investment strategy. Then you can rest easy when you invest in more speculative areas.
9. Always consider tax implications of making investments but never let tax minimization be the main objective. The fundamental rule is to think in terms of after-tax returns.
10. Do not be greedy. Discipline yourself to cut your losses with bad investments and cash in when you have made a reasonable profit.
11. Be patient. Rome was not built in a day. Most of your gains will not happen overnight. Forget the ‘dot com’ type stories because they are not typical. What was the eventual outcome anyway? Similarly, you may not become wealthy overnight, but you will over time.
12. Never invest in anything you do not understand. If a particular investment sounds too good to be true, it usually is. “Don't invest in anything that you don't understand. Do your research first”. Paul Clitheroe
13. A very wise way to start if you haven’t planned so already is, ‘Pay yourself first’ out of your monthly income. Remember “It's not your salary that makes you rich; it's your spending habits”. Charles A. Jaffe. Allocate at least the first 10% of your monthly income to build up your investment capital. By doing this you will force yourself to become an investor and the long term benefits will be enormous.
14. Choose stocks for the right reason, and not simply because they have performed well in the past. Ask yourself whether you are investing in what is comfortable and familiar to you rather than what is best for you. As stated above, it is of course of paramount importance that you understand what you are investing in, but the extra effort required to learn about a new share and a new sector could be worthwhile.
Mastering the above principles will be a surest path to becoming a successful investor. Absolute discipline is the key. Set clear goals and stick to them. Do not be concerned about the “buy and hold” strategy (buy the shares and then lock your investment away in the bottom drawer and forget about it), which used to be accepted as the thing to do. If you set yourself a target of, say 10% (profit or loss), get out when the price hits that level. Whether this is six months, six days or six minutes after the original deal. Patience is indeed a virtue, perhaps now more than ever.
You will rival so-called professionals and will sleep easily at night knowing that money is the least of your worries.
Finally I will leave you with these three quotes. I love quotes because they say to me what I would have used many words to carve out.
“Don't limit investing to the financial world. Invest something of yourself, and you will be richly rewarded”. Charles R. Schwab
“Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest. You can't win until you do this”.
Dave Ramsey
Dave Ramsey
“You do things when the opportunities come along. I've had periods in my life when I've had a bundle of ideas come along, and I've had long dry spells. If I get an idea next week, I’ll do something. If not, I won’t do a damn thing”. Warren Buffett
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