Six Principles of Share Investing

Here is a relatively hassle-free and low-risk investment strategy that should provide good profitability with shares over the long term.  The strategy is outlined here as the six principles of investing and they are:

• Compound your share investment
• Diversify your investment
• Invest in shares with good fundamentals
• Trade at the right price
• Trade at the right time
• Monitor and review regularly.

Investing Principle 6: Stick to the Strategy - Not the Stocks

If a stock no longer meets the fundamental criteria that led you to buy it, don't feel obligated to hold on to it.

You're a long-term investor if you stick to a strategy for the long haul - not because you blindly hold on to individual stocks for long periods.

Investing Principle 5: Don't Limit Yourself

Studies show that "style-box" investing can limit your gains by about 300 basis points per year.

Using "strategy-based investing" allows you to pick the best values in the market at any given time, regardless of market cap or growth-value designations.

Investing Principle 4: Diversify, but Don't Own the Market

Diversification is good - to a point. Maintain a focussed portfolio that includes enough stocks to limit stock-specific risk, but don't hold so many that you end up simply mirroring the market's returns.

In a rigid fundamental-based investing system, portfolios as small as 10 stocks can significantly beat the market over the long haul.

While you don't need to hold stocks in every sector or industry, set guidelines to make sure you maintain at least some diversification across those areas within your portfolio.

Investing Principle 3: Stay Disciplined Over the Long Haul

It is essential to stick to your strategy for the long term. Even the best strategies have down periods, and it can sometimes take over a year to reap the benefits of a good method. If you try to time your use of a strategy, you'll likely miss out on some big gains.

Expectations shape reactions: be prepared for short-term 10 to 20% downturns that are inevitable in the stock market - and the less frequent but also inevitable 35 to 50% downturns you'll occasionally experience. You can't predict when they will happen, so you just have to roll with them if you want to reap the market's long-term benefits.

Give the Internet a rest. Checking your portfolio every day, let alone every 10 minutes, can make you want to jump in and out of the market, which hurts your long-term performance.

Investing Principle 2: Stick to the Numbers

Human emotions cloud decision-making, hampering human beings' forecasting abilities.

Using proven, quantitative strategies allows you to make buy and sell decisions solely on the numbers - a stock's fundamentals - helping to remove emotion from the process.

It is best to stick firmly to strategies that are backed up by long, proven track records.

Investing Principle 1: Combining Strategies

Because of compounding, downside volatility costs you money.

If you are looking to smooth out returns, pick stocks with lower degrees of correlation (those that perform differently in the same type of market conditions).

Learn how to combine strategies to limit risk or enhance returns.

To maximise returns, give more weight to those strategies with the best historical track records.

Six Guiding Investing Principles

Six Guiding Investing Principles

Principle 1: Combining strategies to minimise risk and maximise returns.
Principle 2: Stick to the numbers - or the market will stick it to you.
Principle 3: Stay disciplined over the long haul.
Principle 4: Diversify, but you can't beat the market by owning it.
Principle 5: Size- and style-focused systems only limit investment possibilities.
Principle 6: You don't have to hold stocks for the long term to be a long-term investor.