Investing in stocks is like buying wine. Like promotions, wines can range in price from very affordable to "who the hell is paying that much ?!"
There are hundreds, if not thousands, of grape varieties, so even figuring out which wine you like can be tricky. To keep things simple and to help you ignore labels, wine and food publications and websites offer “rules” for wine selection. Investing is very similar. Among ETFs, mutual funds, stocks, bonds, options and futures, investors can choose from thousands of options.
But, just like with wine, there are 10 basic investment rules that will tell you how to invest abroad and how to invest in Russia.
Investing can be intimidating. Recession, bear market, market correction and market crash are not the words you would like to hear about your money. On the other hand, the market may rise or rebound, it may hit record highs, or you may buy in the early stages of a new bullish trend. How exactly can you make good profits without risking your money?
Some of the leading investing legends like Warren Buffett, Benjamin Graham, and Sir John Templeton have several things in common:
- They have reasonable methodologies
- They are disciplined in their investment processes.
- They work hard and stay focused.
- They are patient
- They successfully deal with their psychological biases.
Investors like Warren Buffett and Benjamin Graham embody these qualities. They also follow very simple formulas that we use as our top 10 rules for investing.
But don't be fooled. While these rules are simple, they are difficult to follow. Some of them seem too simple, while others don't make sense at first glance, but they work. If you want to argue with Warren Buffett about investing, well, good luck. If you want to repeat his success, start with our article.
Follow Warren Buffett's Two Rules
Buffett once said that there are only two rules to follow when investing:
- Rule # 1: Don't waste money.
- Rule # 2: Don't forget rule # 1.
One more thing can be added: making money. In truth, the rest of the rules just help you follow these three rules.
Go against conventional wisdom
Be afraid when others are greedy and only be greedy when others are afraid. Crowd confrontation can be an effective way to make money.
Look in the "wrong" place
Sir John Templeton once joked: “People always ask me where the good prospects are, but that is the wrong question. The correct question is: where are the most deplorable prospects? The obvious practical application of this concept is not to follow the crowd. "
Buy companies at competitive prices
Look for solid return on equity, high operating margins, and low debt. Also, look for companies that generate a lot of money and have a stable operating history over the past 10 years.
Stick with what you know
Invest only where you are sure. If you don't understand what the company does and how it makes money, avoid it.
Keep stock
Many investors forget that money in the stock market can be made by holding shares, rather than buying or selling them. Sounds obvious, doesn't it? This is how the stock market works. The value of your portfolio rises when your stock rises. Therefore, you should hold the stock if you expect the market to go up.
Invest in companies that pay dividends
Investing in undervalued companies takes expectation. Sometimes the waiting period will be long and tedious, but if the company pays out decent dividends, you can sit back and collect dividends, patiently waiting for your stock to go from undervalued to overvalued.
Be patient
Wait for the right time to buy. Patient investors are prepared best when opportunities open up. A wave of such opportunities should come, for example, as soon as the effects of the coronavirus subside. It is important not to miss the point where growth starts.
Get ready to lose
Not all of your investments will be profitable. Losses are a normal part of the business. Your goal is to make sure that your gains outweigh your losses, and the best way to do this is through investment discipline.
There are never guarantees in the stock market. I hope that following the 10 Essential Rules of Investing will help you make the right choice, deal with financial storms like this one, and maybe even turn you into a famous investor.
What investment rules do you follow when creating and managing your portfolio? Share your ideas in the comments below.
