Rules for Investment Success

Dear friend,

The stock market in times past has made more millionaires than any other business combined all together. The current situations in the market have made everybody lose interest in shares investing and the potential it has for making one wealthy. Most people got their fingers burnt because they did not invest intelligently. They invested their hard earned money from a wrong perspective and most inherited a portfolio of debt. Most people investing in the stock market don’t value knowledge but they want quick money. Things don’t happen that way. If you are going to succeed in the game of investing, then you need to align yourself with principles that guarantee investment success. You need to grow inside out, not outside in.

Am an investor and a ace stock-picker myself but i align myself with principles which over the years have formed the foundation for my continued investment success. I don’t look for quick fix solutions, i follow the normal approach of getting things done. I look for a permanent solution to every challenge i face. In my little years of investing below are some of the valuable lessons have learnt about the game of investing.

Lesson 1: Beware of anyone bringing you inside tips and information about a particular company. The number one way to lose money fast in the stock market is to act on tips from people who really don’t know anything about stock investments. The fact that people work in an organization does not make them a stock analyst.

Lesson 2: Before you buy a security, find out everything you can about the company, its structure, management, competitors, its earnings, dividend history, brand and possibilities for growth. Don’t rush in buying, be patient, disciplined and perform your due diligence. Take the time to investigate before you invest your hard earned money.

Lesson 3: Don’t be a jack of all investments. Stick to the field you are most conversant with. Warren buffet did not invest in the dot com companies because he did not understand the industry. The most successful investors are those who pick one particular industry and concentrate on becoming knowledgeable about the companies in that industry. Pick an industry you are passionate about so that you will always have a sustained interest to keep learning about the workings of that industry.

Lesson 4: Don’t try to buy low and sell high. This can’t be done excellently well. When the stock goes high, the greedy part of you will want more increase in price and waiting for that can cost you your entire fortune. When you buy a stock, decide out-rightly at what price you will sell it, and when it hits that price, please don’t be greedy just sell it. Make do with the profit you realize no matter how small. Remember profit makes you a fortune.

Lesson 5: Don’t put your eggs in too many baskets because you will not be able to watch them closely. Better have only a few investment which you can track and watch carefully. Diversification spreads your risk, but it also eliminates any chance you might have for major gains if one of your stocks were to increase rapidly in value. Warren buffet’s philosophy is to put all your eggs in one basket and watch it closely. He forbids diversification.

Lesson 6: Don’t take margin loans to invest if you don’t have a sound and deep knowledge about the workings of the capital market. If you don’t have a large heart for risk and you cannot forecast or see into the future, then please do away with borrowing any kind of money to invest in shares. Thinking a stock will go high in value without having done proper analysis to back up your thought or listening to the voice of your stockbroker whose sole interest is to collect his commission can land you in serious trouble which you will bear for the rest of your life.

Lesson 7: Learn how to take your losses calmly. The stock market is to big and volatile for you to know everything. You cannot always be right all the time. Mistakes are there to remind us that we don’t own the earth and provide us opportunity to review our actions and learn fast. When a stock you think will go high in value start declining and you are not in it for the long term, sell and cut your losses as fast as you can.

Take the above lessons to heart and let them be your guiding principles. I will update it as time goes on.

Cheers