I get a lot of inquiries about investment help from people that aren’t suitable for what I do or people who simply don’t yet meet our minimums. I hate having to turn folks away, especially loyal readers or people that truly need assistance and can’t find anywhere to get it in an unbiased way.
So with that in mind, I’m laying out my Twenty Common Sense Investing Rules. Please understand that these are not intended to be taken as Iron Law applicable in all situations nor are they meant to be specifically geared toward any one person. This list of rules is simply my accumulated common sense, learned in victory and defeat (lots of defeat) and it can be applied to a plain vanilla portfolio within one day.
The below is for ordinary investors, not professional traders or those aspiring to become professional traders…
1. Buy mid-sized and large stocks that are growing earnings and revenue
Top value fund managers are ready for the small cap bear market to be done
During the bull market, small caps haven't been performing well, but some believe that could be about to change. Breach Inlet Founder and Portfolio Manager Chris Colvin and Gradient Investments President Michael Binger both expect small caps to take off. Q1 2020 hedge fund letters, conferences and more However, not everyone is convinced. BTIG strategist Read More
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
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