Some Investing Principles which cannot be disputed
https://myinvestingnotes.blogspot.com/2009/09/some-investing-principles-which-cannot.html
Summary of Indisputable Investing Principles
The provided article outlines several key principles for online investors to adopt for long-term success, emphasizing research, discipline, and a focus on the big picture rather than short-term noise.
1. Managing Winners and Losers
This is perhaps the most difficult principle to practice:
Ride Your Winners: Do not cap your potential returns by using arbitrary rules (like selling after a specific multiple, e.g., "sell-after-I-have-tripled-my-money"). If a stock is performing well and your research supports its future potential, let it continue to grow.
Sell Your Losers: It is crucial to be realistic about underperforming investments. Holding onto declining stocks in the hope of a rebound can lead to substantial, potentially complete, losses. Selling losers is an acknowledgment of a mistake, but it prevents greater losses.
Focus on Merit: In both cases, decisions should be based on research and the company's fundamental merits, not fear or rigid personal rules.
2. Research and Independence
Ignore "Hot Tips": Never invest based purely on tips from anyone (friends, brokers, etc.). Conduct your own thorough research and analysis before committing your money. Relying on tips is a gamble and prevents you from becoming an informed, long-term successful investor.
3. Maintaining Perspective
Don't Panic at Short-Term Volatility: As a long-term investor, ignore day-to-day or minute-to-minute share fluctuations. Short-term movements are for day traders. Your gains come from market movements over many years. Stay confident in the quality of your underlying investments.
4. Avoiding Common Traps
Do Not Overemphasize the P/E Ratio: The Price-to-Earnings (P/E) ratio is just one of many analytical tools. Using it in isolation to decide whether to buy or sell is dangerous. It must be interpreted within a broader context and used with other analysis.
Resist Penny Stocks: The misconception that there is "less to lose" in a low-priced stock is false. A plunge from $5 to $0 is a 100% loss, just like a plunge from $75 to $0. Penny stocks are often riskier and subject to fewer regulations.
5. Sticking to Your Plan
Stick to Your Strategy: Many successful investing strategies exist. The key is to find a style that works for you and stick to it consistently. Constantly switching between different stock-picking strategies is counterproductive and essentially turns you into a market timer, which is usually detrimental to long-term goals.
The core message is to be a disciplined, informed, and realistic long-term investor who makes decisions based on objective research and company merit, rather than emotion, tips, or short-term market noise.
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