The Best Investment Advice I Ever Received
You only buy stocks with money you can afford to lose.
Warren Buffet’s 3 major investing principles:
- You have to look at a stock as part of a business, not just a share price.
- Identify a company’s intrinsic value.
- Have a margin of safety.
Any good investment strategy requires savings be added to the equation.
There is room for becoming a successful investor by understanding 3 simple concepts:
- How to reduce your risk.
- What drives stock prices.
- How to optimize investment returns.
The heavy risk of holding individual stocks can be eliminated by holding all the stocks via a total market index.
In the very long, stock returns are driving almost entirely by earnings growth or dividend yields.
The price of a stock must equal the discounted value of its future cash flow.
Because the market is a zero-sum game, the majority of people can’t beat the market. Every investor’s win is another’s loss.
Coming up with the money to invest is often the hardest part, but if you limit just a small portion of your discretionary expenditures, you can start an incremental path toward investing.
If you don’t have the time to do and keep doing research into specific investments, invest in an index fund.
Don’t wait for the perfect buying opportunities. Invest regularly and don’t try to time to market.
To make money, you have to be right twice; you have to buy at the right time, and you have to sell at the right time.
Know your investment goals and choose investments based on achieving those goals.
If you stick to buying good companies, you’re entry price matters less because that company is bound to grow in the long term.
Don’t put all your money in a single investment, business, or industry—make sure you are well diversified.
Always consider taking some money off the table after a large run up in profit—don’t let greed get the best of you.
Everyone who wants to be a successful investor has to create a plan and stick to it. Start small and dream big.
Diversity is the most important quality of a portfolio.
If you don’t have cash on the sideline, you can’t step in to capitalize on opportunity. Cash is your best offensive weapon.
If you’re adamant on trading individual stocks, consider allocating just 5%-10% of your portfolio and investing the rest in safer long-term investments.
Don’t marry a stock or hold onto it solely out of familiarity. Preserving your capital is the priority.
Avoiding losing investments is just as important as choosing winning investments.
Dollar-cost-averaging, which spreads your total investment amount across time in equal purchases, dramatically reduces your risk toward price fluctuations.
Never emotionally tie yourself to an investment.
Focus on buying companies below their intrinsic value and selling them when they reach fair value.
Tax implications of stock sales must take a backseat to overvaluation. Otherwise, you may never have any taxes to pay.
A successful investor is someone who reduces their risk as much as possible.
If you’re going to invest, only invest in things about which you know a lot. If you don’t know, don’t invest.
Investment decisions should be based on investment principles, not predictions.
It’s better to have 50% of something than 100% of nothing.
The reason for holding a stock is that you believe in the future of the company. If you don’t believe in the company, sell.