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.
1st rule; Pay Yourself
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.
2nd 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.
3rd 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.
4th 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. Please study how the most successful investors like Warren Buffett use these valuations and copy.
5th rule: 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 or did you learn something from the list I created, and off course, you are always welcome to copy my rules.
Regards,
CVM
