Timeless Rules of Investing

Every investment is the present value of future cash flow. Everything Money

Investing is a long-term strategy that focuses on goals that are years, or even decades, away like saving for retirement.

Active trading is a shorter-term strategy for reaching your short term goals.  It requires that you closely monitor the market when you buy or sell stocks.  Moreover, the capital or money you actively trade with should only make up a small portion of your overall investment portfolio.

Before you start saving and investing, you should build a comprehensive financial plan that identifies your:

  1. Goals, vision, purpose and values
  2. Current financial reality (net worth, cash flow and debt)
  3. Risk tolerance
  4. Time horizon
  5. Tax situation

Personal Vision Statement

Your values are linked to your mindset and personal beliefs. Determining your core values is a key step in developing your vision statement. Working toward long-term goals are easier if you really believe in their purpose.

Your personal vision statement is your guide toward a better life and career goals. It gives you a clear direction necessary to make life decisions. Personal vision statements can support your career plan by keeping you focused on long-term goals and setting realistic short-term goals. It’s easy to get distracted today, your personal vision statement will help you to stay on course of the important things.

Remember that your statement is meant to express who you are as an individual and what your career and life goals are. By defining the vision you have for your life requires more than just thinking about it. You need to write it down.

The act of writing something down and then reading it daily reinforces the message and makes it more real.

Rules for investing

There are several classic investing rules that experts are identified that every investor can use throughout their lifetimes. These time-honored guidelines are proven in helping investors achieve their goals, sometimes in capitalizing on gains and sometimes in mitigating losses.

1. An attempt at making a quick buck often leads to losing much of that buck.

  • The people who suffer the worst losses are those who overreach.
  • If the investment sounds too good to be true, it is.
  • The best hot tip I’ve found is “there is no such thing as a hot tip.”

2. Don’t let a small loss become large.

  • Don’t keep losing money just to “prove you are right.”
  • Never throw good money after bad (don’t buy more of a loser).
  • When all you’re left with is hope, get out.

3. Cut your losers; let your winners ride.

  • Avoid limited-upside, unlimited-downside investments.
  • Don’t fall in love with your investment; it won’t fall in love with you.

4. A rising tide raises all ships, and vice versa. So assess the tide, not the ships.

  • Fighting the prevailing “trend” is generally a recipe for disaster.
  • Stocks will fall more than you think and rise higher than you can imagine.
  • In the short run, values don’t matter.

5. When a stock hits a new high, it’s not time to sell something that is going right.

  • When a stock hits a new low, it’s not time to buy something that is going wrong.

6. Buy and hold doesn’t ALWAYS work.

  • If stocks don’t seem cheap, stand aside.

7. Bear markets begin in good times. Bull markets begin in bad times.

8. If you don’t understand the investment, don’t buy it.

  • Don’t be wooed. Either make an effort to understand it or say “no thanks.”
  • You can’t know everything, so don’t stray far from what you know.

9. Buy value, and sell hysteria.

  • Paying less than the underlying asset’s value is a proven successful investing strategy.
  • Buying overvalued stocks has proven to under perform the market.
  • Neglected sectors often offer good values.
  • The “popular” sectors are often overvalued.

10. Investing in what’s popular never ends up making you any money.

  • Avoid popular stocks, fad industries and new ventures.
  • Buy an investment when it has few friends.

11. When it’s time to act, don’t hesitate.

  • Once you’re in, be patient and don’t be rattled by fluctuations.
  • Stick with your plan… but when you make a mistake, don’t hesitate.
  • Learn more from your bad moves than your good ones.

12. Expert investors care about risk; novice investors shop for returns.

  • If you focus on the risks, the returns will eventually come for you.
  • If you focus on the returns, the risks will eventually come for you.

Long-term motivations can change short term actions

Discounted Cash Flow (DCF)

Discounted cash flow (DCF) is a valuation method used to estimate the intrinsic value of an asset based on its expected future cash flows. DCF analysis attempts to figure out the intrinsic value of an asset today, based on projections of how much cash flow it will generate in the future.

Sources:

  1. https://www.indeed.com/career-advice/career-development/personal-vision-statement
  2. https://liveboldandbloom.com/03/self-improvement/personal-vision-statements
  3. Timeless Rules of Investing: Guidelines Every Investor Should Embrace, But Few Actually Do according to Dr. Steve Sjuggerud, Advisory Panelist, Investment U
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