To avoid losing money;
- Studies, studies, studies....
Whether it is the stock market, mutual funds, equities, insurances or any investment products, a deep understanding of an investment is important. What, when, who, why and how; all these have to be answered. I always make sure in whatever I invested in, it must be within my circle of competence. Sounds familiar huh, yes I learn this from Buffett. I believe he is right because the more variables that is left unknown, the more it'll sound like.......gambling. I guess, we are well aware what the odd is. I would rather miss the boat than get myself drowned in a sinking boat.
Sun Tzu said "He whom has done his calculation in his temple, stands a better chance of winning the battle".
Buffett "Investment must be rational - if you don't understand, don't do it"
- Buy only when it is cheap
It is harder to do this for mutual funds because it is harder to evaluate its intrinsic value given the fact that it invested in multiple places of investment. Perhaps the easier to purchase is when we hit a bear market for equities themed funds. Maybe you can advise me. For equities, it is straight forward. Buy when it is below its intrinsic value.
- Margin of error
Investment is no rocket science. There is no way that the calculation of intrinsic value be 100% accurate not even 99%. So the best way to do this is to have a margin of error. The margin depends on individual on the amount of risk one wants to take. "I rather be approximately right and precisely wrong" Buffett.
- Beware of the demon called, Greed
Do not jump into a stock just because it is "hot". Because it really burns. "Hot" stocks normally have an unpredictable business nature. This is a good thing for speculators because prices tend to fluctuate violently. And they love this because it gives them the opportunity to buy low and sell high --- or does it? Not everyday's Sunday.
- Turn off the stock market
Why? Human are emotional. We are happy when we see green and sad when we see red. So why bother making ourselves sad when we are not selling after all. For me, the more I look at it, the more I'll get driven by the nuisances of the market so I better not see. That doesn't mean I buy and leave them there. I still monitor them, but not the prices but their business operations. It won't take too much of my time, few minutes everyday, few hours every quarter and few days every year.
- Diversify but not too diversify
I always hear the anti buy and hold investors say "We are different, we are not Buffett". Well, as a long-term value investor myself, I have to agree with them on this --- partly. It is true for as a retail investor myself, there are things that Buffett does that I can't. It'll be hard to imagine that I can call up a CEO of a corporation and ask him/her for a lunch or coffee break. I can only know that much that I can't afford to have a focused portfolio like he does. So, I try to diversify a little but not too much or too deliberate as I am still a believer of focus investing. I have to admit that my current portfolio aren't too diversified either, currently managing 4 equities and a fund. What Buffett said makes sense "I can't make hundreds good decisions all every time". But like I say, I no Buffett, I'll diversify a bit if I felt a little uncomfortable with the amount of holdings in a particular stocks.
- Don't get marry because of money
Companies with questionable corporate governance should be avoided even if it is making hell lots of money. A bad person is a bad person. Your money will not be safe with this people. If I see something that I don't feel comfortable with, I'll either reduce my holdings or sell off everything.
These might not be all but that's all I have, I'll update this post from time to time as I learn. Maybe you have some that you might want to share. Hope to learn from you as well. Nevertheless, it is important to learn not to lose money before thinking how to make them.
History have proven that point:
Inter Milan (Champions League 2010) - I hate to see this as a Devils fan
"Investing is entertaining, if you're having fun, you are probably not making any money. Good investing is boring" Soros
Ah...how about rule No.2? Ermm....Ginkgo?
This comment is based on my personal thoughts, opinions and my risk tolerance. It should not be considered as an investment advise. Please consult your financial advisor or do some research of your own before making any decision. You might have your own thoughts. I would love to here from you. You can always place your comments here and or email me privately at firstname.lastname@example.org