Hi,
This time I
will talk about a little bit about my investing rules. I try to avoid investing
mistakes by any means and this is the main reason why I have created these
rules to myself. Also, these rules will keep me and my investing strategy discipline
and perseverance. If the investor does not have any investing rules, it is
quite clear he or she will not reach the full potential of the portfolio.
My first and
probably the most important rule is to pay to myself first and then use the
rest of the money to other costs (food, car and etc.). This rule comes from the
book called “The richest man in Babylon”. The basic idea is to invest first 10%
of your net income to stocks, etf’s, funds and etc and use 90% income to other
stuff. People has a bad habit to use everything what they have in their bank
account and by doing this (pay first to yourself and then to others) you will
automatically adjust your spending into right level and your keep your savings.
My second
rule is: Don’t fear the loosing of the money:
The longest
time-period has been around 20 years the stock full cover from the recession. This
happened a long time ago and cover periods of the last four recessions has been
much shorter (around 5 years). Even if the recession would start tomorrow I know that "soon" my
stock values will be at same level than today. Also, this recession would be a great
time to buy stocks due to low valuation levels.
Third rule: Please
remember to use diversification when creating your portfolio.
The max for
one stock sector (example finance) is 20% and 5% of one stock. Okey, this “5%” rule
applies when your portfolio grows to 6 digits, but when you are dealing with 5 digits or even
smaller portfolio, try to remember this 20% rule what comes to sector picking.
Fourth rule:
Create a rule(s) for valuations.
Investor
should create the rules what he or she will use when picking the stock. For
example; stock value should be under 16 p/e or dividend yield should be over 2%
and etc. I will share my stock picking rules in coming posts.
The last
one: Trust yourself!
When you made
the study about your stock and you chose the one to invest, trust yourself and
please keep the stock in your portfolio more than one year. After one year,
investigate what has happened. You will learn a lot of yourself as an investor
and about your investing strategy. Please remember, as daily basis, only 1% of
stock owners will decide the stock price. Like Warren Buffett has said; “The
stock market is a device for transferring money from the impatient to the
patient.”
Please use the comment section below and tell me
what are your rules what comes to investing. And off course, you are always
welcome to copy my rules.
Regards,
CVM
