10 Rules Every Investor Needs To Follow
Investing the stock market takes discipline in order to be successful. Jumping in blind with no more idea of what to do other than “buy low, sell high” is the quickest way to lose your money. Without some guidelines to help you out along the way, it’s easy to make mistakes and get discouraged.
The good news is that investing isn’t rocket science. Even the smartest Ivy League college graduate knows that successful investing means following the rules. So before you start navigating the waters of Wall Street, here are 10 rules that every investor should be obeying:
- Know What You Own – The hottest new tech company may be all Wall Street and your friends are talking about but if you don’t understand what it is they do or how they actually make a profit, take a pass on it.
- Cash Is Also An Asset Class – Too many investors think that they need to be all-in in order to be a successful trader. Keeping cash on the sidelines though means that when an opportunity presents itself, you can act quickly without having to sell out of another investment before you’re ready.
- Diversify, Diversify, Diversify – This rule cannot be understated. Don’t keep all your eggs in one basket; diversify your investments to avoid getting hit by a single event that only affects a limited part of the stock market.
- Stay Calm And Keep Investing – Panicking when the market is behaving erratically is the quickest way to big losses. Don’t get sucked up in the hype and remember when everyone is selling, you should be buying and vice versa.
- Don’t Fall In Love – Remember that stocks are just investments. You may really like a certain company, but if a better opportunity comes along, you can’t be afraid to chase it down.
- Filter Out The Noise – Wall Street always has a new crisis or a new big opportunity for you to worry about. Ignore the pundits and stay focuses on the fundamentals.
- Explain Why You Own A Stock – Know why you want to own a particular stock. Is there a reason you think it’s going to appreciate? Before buying, be able to explain to a stranger why you think the stock is worth owning.
- Due Diligence – It might not be fun, but sticking to your due diligence will keep you from making costly mistakes. Always do your homework before buying a stock or could end up with an ugly surprise down the road.
- Don’t Be Afraid To Cut Your Losses – It’s never fun to admit defeat and even less fun to sell a stock at a loss. But if you own a loser, you need to cut it loose before it does more damage to your portfolio.
- Hogs Feast, Pigs Get Slaughtered – Once a stock you own has made the profits you expected, it’s time to move on. Don’t hold on and try to squeeze every last drop of profits from a stock or you could end up losing all the gains you thought you had in the bag.
It’s a lot easier to maintain discipline by following these simple rules for trading. As you become more experienced with trading, you may decide on a few more rules to help you stay focused as well. As long as it helps you become the best investor you can be, rules are a great way to keep your portfolio in check.