Stick to the GOLDEN RULES of Investing

23326550.jpgStick to the rules. Believe it or not this is the hardest rule. The trader will keep breaking this one time and time again. As I have mentioned many times, every time that I have strayed away from my trading plan I have always lost money.

Diversify. Don’t have all your eggs in one basket. Buy from a couple of areas, not just the one sector.

Buy shares that suit your trading style. If you are buying shares for long term, obviously this won’t suit you if you are a short-term trader. And vice versa, shares for short term won’t suit if you are a medium to long term trader.

Know your risk tolerance. A speculative share has a different risk profile to an out-of-favor blue chip. Therefore allocate your capital according to the risk profile of the trade and your own personal risk tolerance. This is a personal decision that only you can make.

Don’t rush in. All investor’s particularly new ones should take their time and learn about the market before they start trading. A good way is to “dummy trade” first so as so as to learn the basics first. The market will still be there waiting for you for when you are ready to trade.

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Don’t get greedy. Do not expect unrealistic returns.8-16 % is a good figure to aim for. Don’t think this is easy, and get over confident and think that you will be a millionaire overnight. It is all too easy to lose money on the stock market.

Only invest what you can afford to lose. If the share is causing you lose sleep or it is worrying you. The reasons could be that you either own too many of them or it is the wrong type of investment that suits you. Sell them! Peace of mind is very important. You don’t need the unnecessary stress.

Never, ever chase shares and as I have always said “don’t do what the average investor is doing”.

Never go beyond the limits that you have set. If you exercise a little patience you will usually be able to buy shares below your limit. The cents saved on your buying and selling will add up by the end of the year.

As I have said before the hardest rule is to stick by them. But believe me it is worth the effort. I hope these “Golden Rules” make you some “gold” in the rear future.

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2 Responses

  1. Most traders practise “diversify” but Warren Buffet plays “concentration”. Is that due to financial competence?

  2. Jude says:

    I would say its difference in opinion. Sometimes when you diversify too much, you’d get peanuts when most of them go down the drain.

    Most importantly I think you’ll have to know what you buy really really well before deciding to own a piece of it.

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