The most important lessons I have learned from two decades of investing. i.
Investing is fun, exciting, and dangerous if you don’t do any work.
You can outperform the experts if you use your edge by investing in companies or industries you already understand.
ii.Behind every stock is a company. Find out what it is doing.
iii.Often, there is no correlation between the success of a company’s operations and the success of its stock over a few months or even a few years. In the long run, there is a 100 percent correlation between the success of the company and the success of the stock. This disparity is the key to making money; it pays to be patient, and to own successful companies.
iv.Owning stocks is like having children- don’t get involve with more than you can handle. The part-time stock picker probably has time to follow 8-12 companies, and to buy and sell shares as conditions warrant. There don’t have to be more than 5 companies in the portfolio at any one time. If you can’t find any companies you think are attractive, put your money in the bank until you discover some.
v.Never invest in a company without understanding its finances. The biggest losses in stocks come from companies with poor balance sheets. Always look at the balance sheet to see if a company is solvent before you risk money on it.
vi.Avoid hot stocks in hot industries. Great companies in cold, non growth industries are consistent big winners.
vii.If you invest $1000 in a stock, all you can lose is $1000, but you stand to gain $10,000 0r more over time if you’re patient.
viii. The average person can concentrate on a few good companies, while the fund manager is forced to diversify. By owning too many stocks, you lose concentration. It only helps to make a handful of big winners to make a lifetime of investing worthwhile.
ix.Everyone has the brainpower to make money in stocks. Not everyone has the ‘stomach’. If you are susceptible to selling everything in panic, you ought to avoid stocks, and stock mutual funds altogether.
x.Sell a stock because the company’s fundamentals deteriorate, not because the sky is falling.
xi.Nobody can predict the future direction of companies in the stock market. Dismiss all such forecasts and concentrate on the financial positions of the companies in which you invested.
xii.If you don’t study any companies before investing on them, you have the same success buying stocks as you do in gambling.
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