I’ve discussed trading on this site in great detail, but one thing I haven’t shed enough light on is what to do if you are a new long term investor in the market. The following five rules were handpicked by me and have both helped me generate huge amounts of money and save huge amounts of money from not doing anything stupid. And thats what this is all about. Its not about how much you expect a stock to go up in value. If you take care of what you do while things are going to the downside, the upside will always work itself out.
Rule #1: The first rule for investing in stocks: Never ever ever sell ANYTHING for a loss! Investing is just like sex. A smart person only has sex with people they wouldnt mind having a baby with…incase sh*t happens. Don’t go around sleeping with any and every hoodrat because you might end up with the itch for life after your best laid plans dont come to fruition. If you stick to this rule, it will guide you away from some extremely retarded investment decisions.
Besides, if you wouldnt want to own something for 10 years why are you even holding it for 10 seconds?? If youre just starting out investing and you dont understand how this rule works..you better start slow and be confident in your purchase because you are now in a partnership with that stock for richer or for poorer. If you see something else you want to jump on and are thinking of taking money out of a losing stock, you’d better find some additional funds to deposit into your account because its not happening under my watch. (yes I am watching you).
So for real, if the stock you bought is currently less in value than when you bought it, there is no sell until it gets back into positive territory! Got it? Good.
Rule #2: Be fearful when others are greedy and greedy when others are fearful– the same as Warren Buffett preaches. If everyone from the president of your company to your taxi cab driver is running around talking about how much their house jumped in value then thats your cue to SELL. Same thing with stocks.
The reverse is true when its time to buy. If people are running around frantic and there is blood in the streets, I need you to pull the trigger and pull the trigger viscously.
Rule #3: Buy slowly and sell quickly. Never buy an entire position in any company’s stock all at once. Learn how to scale into a stock each time it drops a certain percentage point. Normally 5% per drop. Build the position slowly and when it finally gets up to your target price…dont think…take profits! My general rule is 50% off the top.
Rule #4: The only time you get a free lunch in the stock market is when you maintain a well diversified portfolio. For example, an average diversified stock portfolio is one that has atleast 5 different stocks in 5 different sectors (ie. technology, energy, retail, commodities & financial). A well diversified portfolio overall (not just talking about stocks) is one with stocks, bonds, precious metals, investment real estate and other various investment avenues.
Rule #5: You only need ONE good idea. As long as your best one idea is extremely better than all of your worst ideas, you will be wealthier than you could have imagined. For instance- if you spent $10k on 1 different company’s stock each year, randomly since the year 1970 and ALL of those companies went bankrupt but one, you would have lost $390k. But it happens that one stock that didnt go bankrupt was Walmart and you bought it when the IPO was released. That one stock (currently at $54 right now) would be worth $9,131,667 today. Hmmm..loose $390k while everyone laughs at you while you gain $9million silently – I’ll take it. (again the $390k is the amount youd lose if every $10k investment you made over 40 years went up in smoke besides one- Walmart)
So why only 5 rules? Because noone even becomes close to becoming an expert in the stock market unless you are IN the stock market…and only after years upon years of being there. You could read book after book after book and have all the market knowledge in the world and it wont mean jack once a major downturn happens. The rules I’ve supplied above have worked for me through these recent tumultuous times and can work for you. They were designed to keep you protected and in the game even if you know absolutely nothing else at all. By always keeping these 5 rules at the forefront of whatever your strategy turns out to be, your gains will be lightyears ahead of many other investors….including experienced investors who dont follow these rules.
(Stay tuned for my list of rules for more experienced investors)
Here are some of my favorite brokerage accounts in order for individual investors :
Here is are a few websites new investors should be checking atleast twice a week if not daily:
Heres a few websites that can give you a pretty good foundation of how investing works: