Josh’s Twenty Common Sense Investing Rules (ZT)# Stock
c*r
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1. Buy mid-sized and large stocks that are growing earnings and revenue
2. Buy large and mega-sized stocks that are paying consistent dividends and
have low debt-to-equity ratios
3. Read the news on your stocks once a week maximum, once a month minimum
4. The moment a stock disappoints you or makes you wish you hadn't bought it
, sell it. Immediately and regardless of price. Life is too short to hope
a bad decision reverses itself
5. Don't get In or Out of the market, but modulate your exposure up and down
as a function of what you think is happening. Your guess based on all the
available news and indicators is as good as anyone else's - and it is more
important than anyone else's for sure because it is your money on the line
6. You should be willing to take a 20% drawdown on every dollar you have in
the stock market. Obviously being down 20% is not the goal, but it's the
reality - it can happen at any time. It's not a permanent loss but you need
to invest as though it could be
7. Don't buy stocks trading over 30 times earnings or under 7 times earnings
- something is wrong in both cases. Stay away from anything not trading on
a US exchange. Avoid the 52-week low list - a loser is a loser
8. Don't buy stocks with market caps under $500 million unless you are
playing and can afford to lose 100% of that money
9. Sell any stock with a controversial development or red flag no matter
what. Let someone else be the hero that swoops in on a mispriced,
misunderstood security. You can cheer them on from the safety of the
sidelines. Earnings restatements, auditor resignations, massive unexpected
earnings misses, filing delays, fraud allegations etc are all automatic
sells. Let's not act like there aren't 8000 other stocks to choose from in
the market
10. Use ETFs to own sectors that are in favor as opposed to individual
stocks, when a huge positive trend becomes apparent - you'll get the upside
without the single-stock risk. The aging population and increasing demand
for energy are big, fat pitches - it's hard to swing and miss if you own big
swathes of these industries via an ETF, make your life easier
11. Avoid all mutual funds except for asset allocators (balanced funds or go
-anywhere can be very useful for investors). Anything based on a discipline
(value, growth) or a sector (tech, financial) or a cap size (large, small)
is going to underperform its benchmark over the long-term, mean revert
versus its peers and cost you more than you need to spend in internal
expenses. This is fact not opinion
12. Don't try to be a trader unless that's going to be your full-time gig.
Trading as a hobby is not the same as being a trader - and it's less fun
than you might think. If you've decided to become a trader, find a method
and stick with it until you can do it regularly
13. Pay no attention to people who are always pessimistic. The dirty secret
is that even when things are terrible, they aren't that bad. 2008 was the
worst sell-off and economic conundrum in 70 years and it only took 18 months
for the market to come all the way back. If you fell asleep in 2007 and
woke up now five years later, your diversified portfolio including dividend
income and unrealized gains/losses looks like nothing ever happened at all
14. Pay no attention to people who are always optimistic. They are selling
something. if someone can't admit that things suck every once in a while,
their cheerfulness has an ulterior motive. Or they belong in an insane
asylum
15. The financial media wants you to think you are missing out on something
and that you need to tune in or click to get up to speed. Pay attention
only if you are generally interested and get some entertainment value out of
it, most of the time the headlines and segments are dreamed up by editors
and producers who need something interesting to talk about each day. And
that's fine, everybody has to earn a living - but don't think anyone is
keeping you informed as a public service
16. Don't follow gurus. Don't buy software. Don't buy DVDs. Don't listen to
"Gut Traders". Read books by and about people who've been successful in the
market - but only if you're interested. They won't help you become a better
investor if you don't care that much to begin with
17. Remind yourself about the difference between investors and traders:
Investors make trades when necessary, traders make trades in the course of
doing business - that is what they do for a living and your goals are
different than theirs. You don't get paid out on closed positions or a
daily p&l statement.
18. Don't trade for excitement even though trading can be exciting at times
19. Don't trade angry or for revenge (this motherf*cking stock owes me!)
20. When you finally do become wealthy, hire other people to do this for you
and watch them. Go about enjoying the short time we all have left on earth
away from the screen. Kiss your kids and play tennis and read books and
get drunk during the day just because and go to Australia for a month and
buy that car you drove in high school - fix it up and take your sweetheart
for a ride. Don't spend that time reading about inverse correlations between
German bund yields and the gold/oil ratio. Because that's all masturbation
and really, who gives a sh*t?
2. Buy large and mega-sized stocks that are paying consistent dividends and
have low debt-to-equity ratios
3. Read the news on your stocks once a week maximum, once a month minimum
4. The moment a stock disappoints you or makes you wish you hadn't bought it
, sell it. Immediately and regardless of price. Life is too short to hope
a bad decision reverses itself
5. Don't get In or Out of the market, but modulate your exposure up and down
as a function of what you think is happening. Your guess based on all the
available news and indicators is as good as anyone else's - and it is more
important than anyone else's for sure because it is your money on the line
6. You should be willing to take a 20% drawdown on every dollar you have in
the stock market. Obviously being down 20% is not the goal, but it's the
reality - it can happen at any time. It's not a permanent loss but you need
to invest as though it could be
7. Don't buy stocks trading over 30 times earnings or under 7 times earnings
- something is wrong in both cases. Stay away from anything not trading on
a US exchange. Avoid the 52-week low list - a loser is a loser
8. Don't buy stocks with market caps under $500 million unless you are
playing and can afford to lose 100% of that money
9. Sell any stock with a controversial development or red flag no matter
what. Let someone else be the hero that swoops in on a mispriced,
misunderstood security. You can cheer them on from the safety of the
sidelines. Earnings restatements, auditor resignations, massive unexpected
earnings misses, filing delays, fraud allegations etc are all automatic
sells. Let's not act like there aren't 8000 other stocks to choose from in
the market
10. Use ETFs to own sectors that are in favor as opposed to individual
stocks, when a huge positive trend becomes apparent - you'll get the upside
without the single-stock risk. The aging population and increasing demand
for energy are big, fat pitches - it's hard to swing and miss if you own big
swathes of these industries via an ETF, make your life easier
11. Avoid all mutual funds except for asset allocators (balanced funds or go
-anywhere can be very useful for investors). Anything based on a discipline
(value, growth) or a sector (tech, financial) or a cap size (large, small)
is going to underperform its benchmark over the long-term, mean revert
versus its peers and cost you more than you need to spend in internal
expenses. This is fact not opinion
12. Don't try to be a trader unless that's going to be your full-time gig.
Trading as a hobby is not the same as being a trader - and it's less fun
than you might think. If you've decided to become a trader, find a method
and stick with it until you can do it regularly
13. Pay no attention to people who are always pessimistic. The dirty secret
is that even when things are terrible, they aren't that bad. 2008 was the
worst sell-off and economic conundrum in 70 years and it only took 18 months
for the market to come all the way back. If you fell asleep in 2007 and
woke up now five years later, your diversified portfolio including dividend
income and unrealized gains/losses looks like nothing ever happened at all
14. Pay no attention to people who are always optimistic. They are selling
something. if someone can't admit that things suck every once in a while,
their cheerfulness has an ulterior motive. Or they belong in an insane
asylum
15. The financial media wants you to think you are missing out on something
and that you need to tune in or click to get up to speed. Pay attention
only if you are generally interested and get some entertainment value out of
it, most of the time the headlines and segments are dreamed up by editors
and producers who need something interesting to talk about each day. And
that's fine, everybody has to earn a living - but don't think anyone is
keeping you informed as a public service
16. Don't follow gurus. Don't buy software. Don't buy DVDs. Don't listen to
"Gut Traders". Read books by and about people who've been successful in the
market - but only if you're interested. They won't help you become a better
investor if you don't care that much to begin with
17. Remind yourself about the difference between investors and traders:
Investors make trades when necessary, traders make trades in the course of
doing business - that is what they do for a living and your goals are
different than theirs. You don't get paid out on closed positions or a
daily p&l statement.
18. Don't trade for excitement even though trading can be exciting at times
19. Don't trade angry or for revenge (this motherf*cking stock owes me!)
20. When you finally do become wealthy, hire other people to do this for you
and watch them. Go about enjoying the short time we all have left on earth
away from the screen. Kiss your kids and play tennis and read books and
get drunk during the day just because and go to Australia for a month and
buy that car you drove in high school - fix it up and take your sweetheart
for a ride. Don't spend that time reading about inverse correlations between
German bund yields and the gold/oil ratio. Because that's all masturbation
and really, who gives a sh*t?
