Rules of Investing
- Do not trade emotionally.
- Do not hold losers past the worrying point.
- Keep a liquid account ready to buy irrationally over-corrected value-stock investments
- Study the business cycle, not the portfolio.
- Diversification is the only free lunch.
- Buy bonds through a Roth IRA to reduce taxes.
- Buy stocks through 457 or 401k plans to reduce taxes.
- Use a discount broker only when you can do so without over-trading.
- Never trust any investment advice.
- Use No-Load funds for sector acquisitions and unmanaged index investing
- Use DRIP when available
- Do not dollar-cost average
- Buy stocks after a recession has gone on for six months.
- Sell stocks if the Federal Reserve raises short-term interest rates above long-term rates.
- Other than small capital stocks, sell in any month when the annual PPI exceeds 4.25%.
- Revenue growth is the only true growth.
- Staying ahead of inflation is more important than earning the highest possible yield.
- A good stock at a small discount is a better buy than a lousy stock at a big discount.
- When it comes to trading deal stocks, small investors can't beat the professionals.
- Losers average losers
- Small investors who buy stock options generally end up losers.
- You make money by anticipating the market's major moves, not by fighting them.
- Anything reported in the news is already reflected in a company's share price.
- Avoid the Highest Dividend Stocks: You can't pick stocks by dividend yield alone. Above normal dividends are often a red flag for a company in distress. Studies have consistently shown that you will earn higher long-term returns by avoiding risky stocks with overly high dividends.
- Beware the Dividend Time Bombs: Not all dividends are created equal. Even if a company has a generous dividend, it must be able to maintain it. A doomed to be cut dividend can be worse than no dividend at all. Once a dividend is cut, it's likely to make the share price fall also.
- Cash Is King: Free cash flow (FCF) is the true health of the business. Find the companies that generate tons of it. Even in the worst of times, those flush with greenbacks have options. Firms with cash can buy back their shares to raise stock prices, make their debt payments, increase dividends, and buy other profitable businesses. That's why cash flow is the single most important factor that determines value in the marketplace.
- Don't Focus on Income without Growth: Only growing businesses are truly healthy. So cash flow needs to be strong enough to not only pay a healthy dividend but also generate enough cash to grow and stay strong strategically.
- Don't Forget Value: An investment's total yield depends on both the dividend amount and the stock price. Stocks of companies making real products and real profits often don't make the headlines. So dividend stocks can also be a great source of hidden value. Finding value by focusing on dividends first can help you avoid catching the falling knives that trap some value investors.
- Keep a Long Term Focus: Many brokerage houses make investment recommendations based on a very short term view of the world, often a maximum twelve month timeframe. Individual investors should have at least a three to five year view when considering investments. More time helps you fully realize the true power of compounding dividends.
- Sell a house when the weather is hot, buy a house when the weather is cold.
Personal Investment Strategy
- Accumulate wealth until 2024. Aggregate money in low-risk instruments to prepare to take advantage of irrational over-corrections.
- Review investments monthly or quarterly.
- Invest in average to above average risks until 2014, thereafter aggregating funds into average and lower than average risk instruments including TIP bonds via discount brokers for inflation protection.
- Invest in socially responsible concerns through value-bargain buying and constant diversifying.
- Seek a 9% annual return. Do not envy the returns of others.
- Sell at 3 year and 5 year highs when other instruments offer bargain positions which will diversify the portfolio.
