Every person should have a solid foundation or set of key principles to investing. Even if you are not a financial savvy person, you should still sit down and outline what your key principles are. I thought it would be helpful to share mine. Please feel free to let me know what your principles are in the comments section.
- Ignore daily market moves: I do not pay much attention to the daily ups and downs of the stock market. I tend to focus on long-term outlooks of the economy, industry, and company dynamics.
- Find good companies: I focus on finding good companies first. I focus on quality and don’t look at the stock price until I find a good company that I would invest in.
- Buy and hold: I only invest in the long-term. I would like to hold onto my investments for at least 5 years, and likely longer.
- Always keep learning: No matter what, I always am continuously learning about investing in my life. I try to learn as much as I can, and read as much as I can.
- Invest with a margin of safety: If you buy an asset for less than its real value you have a margin of safety. The best plan to lower risk is to buy investments at a price that is lower than the real or intrinsic value. A low price means greater upside appreciation if conditions are favorable. At the same time, a low price provides a margin of safety if circumstances are not ideal. Always plan on less than ideal conditions, something usually goes wrong.
- Diversification is key: Investment diversification in small numbers provides enormous benefits. I never put my eggs in one basket, and think diversification helps me if I make a mistake.
- Keep expenses as low as possible: I don’t invest in high cost mutual funds or ETFs. I usually try to keep my expense ratio below 1%.
- Invest early and often: I have tried to invest as early in my life as possible. This way I get the benefits of compounded growth. This will pay off as I near retirement.
- Take control: No matter what, I always am in control of my investments. I still seek advice, but I am the one who is controlling the decisions.
These key principles aren’t for everyone, but I try to live by these for my investing.