The 10 Tenets of Investing
24 Jan
If God has the 10 Commandments, then I wanna share this 10 Tenets of Investing with you guys. I accidentally read this article called “Secrets of Super Fund Managers” here (yes click here for a very very old article), and it ends with the 10 tenets of investing. Good to know though I don’t think point 6 is always possible for fund managers due to clients’ demand and portfolio’s mandate. But yes, long term investment is good if you are street stock pickers. Enjoy reading and most importantly, practice it…
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The 10 Tenets of Investing
1. Do your homework – know all there is to be known about the company. Talk to suppliers, customers and you will be surprised at what you may discover.
2. Determine intrinsic value – find out the true value of the stock. It is the single most important thing to consider when entering and exiting a stock, that is, to get in at undervalued prices and to get out when the stock is over-priced.
3. Discipline – stick to the intrinsic value. Rarely does anybody get in and out of a stock at the lowest and highest points. Most of the time, the last 20 per cent or 30 per cent has to be given away.
4. Be sceptical – just remember, there is never easy money to be made. Always investigate your leads. Nothing is ever handed on a silver platter.
5. Never invest on borrowed money – you may have to make a decision that you may regret later, such as being forced to sell.
6. Be patient – as evidenced by the three-year and five-year returns of fund managers, long-term investment pays. Much success can be achieved by inactivity too.
7. Do not over-diversify – it is better to invest in a few companies that you know a lot about than to invest in a lot of companies that you know little about.
8. Do not average down on a money-losing proposition – remember, a bad business is a bad business no matter how much you invest in it. An example is timber stocks that have not recovered since the mid-1990s.
9. Watch others – be fearful when others are greedy and greedy when others are fearful.
10. Be smart – you need to invest to become rich but you do not need to be rich to invest.
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