By Dr. Steve Sjuggerud, Advisory Panelist
Thursday, March 17, 2005: Issue #340
Uh oh. We’re in trouble…
I hosted our annual Investment U seminar, where a few hundred attendees learned to be better investors. With a laundry list of the stars in our business, attendees picked up a lot of great investment ideas. And that might have been the problem…
While picking up a few good investment tips might be a nice thing in the short run, it’s not going to sustain you over the long run.
So in my closing remarks at Investment U, I tried to make sure attendees stayed on the right path. I turned investors’ attention back to Investment U’s “Twelve Timeless Rules of Investing.” I pointed out four timeless investing tips that are particularly important right now…
Timeless Investing Tip #1: An attempt at making a buck often leads to losing much of that buck.
“Wow, XXX sure has soared. If only I’d bought call options on the stock instead of just buying the stock, imagine how rich I’d be… I’d be retired now. Or… If only I’d bought a tiny oil exploration company instead of the big blue chip, I’d also be retired.”
It’s a nice thought… but it just doesn’t work in practice. As natural resources expert Rick Rule said: “Your risk is infinitely higher with a company looking for oil than a company that’s already got it.”
Everyone wants the big score. But chasing it is like playing the lottery – for a lucky few, it works. For everyone else, those lottery tickets expire worthless.
Timeless Investing Tip #3: Cut your losers, let your winners ride.
Most individual investors invest with a strategy that’s doomed from the start. They invest in a limited upside, unlimited downside way. If a stock goes up 20%, they’ll take a profit. If it goes down, they’ll hold it. This leaves them with a portfolio of losers.
We recommend investing in an unlimited upside, limited downside way. If you use something like a 25% trailing stop, then your losers get sold, and you end up with a portfolio of winners.
Timeless Investing Tip #7: Bear markets begin in good times. Bull markets begin in bad times.
I don’t know about you, but times are good where I live. “You can’t go wrong in real estate” is the common sentiment. Everyone is into it. And it’s the same with the stock market. The Dow Jones average is like 10% away from its all time highs. Chances are, now’s not the time to be buying stocks or real estate (on the coast of Florida, at least!).
Timeless Investing Tip #10: Investing in what’s popular never ends up making you any money. Buy an investment when it has few friends.
It makes sense. If you’re doing what the average guy at a cocktail party is doing, you’re doomed to average returns… at best.
In order to buy something cheap, you’ve got to buy when nobody wants it. So you can’t be buying what everybody else at the cocktail parties are buying.
There’s always something that everyone hates. I’ve been recommending gold coins and some stocks in Argentina and Israel recently. Now, those are conversation stoppers at the cocktail parties! And that’s just what I want to buy…
If a few of your neighbors are bragging about how much money they made in “X,” then chances are, it’s time to avoid “X.”
I picked these Timeless Rules for investing out of our list of 12 because I felt they were the most pertinent rules for the attendees at our conference. And if these reminders were good enough for attendees, they’re probably good reminders for you, too.
Editor’s Note: For the full list, download The Twelve Timeless Rules of Investing. Please Note: This is a PDF file and requires Adobe Acrobat Reader to download.
Today’s Investment U Cribsheet
- Buying investments that are hated by the mainstream is often a good way to make money. For a currency play that lets you do just that, check out Investment U Issue #406 – The Easiest, Safest Way to Short the Euro.