Today, I’d like to share my Top 15 rules to successful stock market investing. Every game has rules, and in order to win and maximize your potential, you need to understand the rules. Each person may have his or her own rules at a micro level, but my top 15 investment rules are focused on the macro level, and they should apply to any long-term investor. The key term is “long-term investor”. There’s no get rich quick method with my approach. Long-term investing takes time, patience, discipline, and well, quite frankly, tolerance to pain. Sure, you need to eliminate all emotion when investing, but that’s much easier said than done. Even successful long-term investors like me cringe when they see huge losses. The difference is we can turn a switch and move on, focusing on what to buy when there’s blood in the streets, focusing on the long term, five, ten, fifteen years from now. I see way too many people aimlessly surfing the Internet on Facebook, Twitter, StockTwits, etc. looking for advice and stock tips, but it’s clear that the majority don’t understand the game, and they don’t have a plan. You need a plan and a set of rules that coincides with your plan. My list should help, so let’s get started!
- Rule 1: Only invest money you can afford to lose.
- Rule 2: Do not buy all shares at once. Dollar cost average. I typically buy 20–25% at a time. Leave room in case it goes lower.
- Rule 3: No F.O.M.O.! Fear of Missing Out. If it runs, let it. Don’t chase.
- Rule 4: Never be afraid to take profits. I’m not suggesting you liquidate a winner, I’m simply saying take a few chips off the table. Trim 10–20% of your gains when a holding becomes frothy. You can always buy more shares when they go down. This is important for outperformance.
- Rule 5: Diversify your portfolio to hedge risk.
- Rule 6: Separate all emotion from investing. This includes dwelling on past decisions.
- Rule 7: Do your homework! If you can’t explain to someone at least three good reasons to buy a stock, don’t buy it.
- Rule 8: Patience is critical to long-term investing success. If you lack patience, hire someone to manage your money for you.
- Rule 9: Expect corrections and embrace them. These are buying opportunities.
- Rule 10: Always have some cash, a.k.a. “dry powder”. 5–10% at a minimum. There’s nothing worse than having no cash when your favorite stocks are on a fire sale.
- Rule 11: Cut your losses. If a story changes, and you lose confidence in the future outlook of a company, DO NOT buy more. Cut your losses and move on. Repositioning capital quickly will allow you to recover faster.
- Rule 12: Beware of hype. If your neighbor who casually invests tells you about a hot stock, you are likely too late. You will buy high and sell low. This also goes for social media, television shows, etc.
- Rule 13: Focus on moats. If a company is best-of-breed, especially with no or little competition, it’s likely a winner.
- Rule 14: Don’t let anyone tell you the best strategy for you. Try to learn from others like a sponge and make your own path. Each person has different goals, timelines, and suitability.
- Rule 15: Likely most important of all: have a plan and stick to it!
This content is also available as a video here: Top 15 Investing Rules for Long Term Investors — Stock Market Tips — Stock Tips for Beginners https://youtu.be/Hdn49_EqGLI
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