The Five Secrets Every Investor Should Know

By Brian Hunt, Advisory Panelist, Investment U
Thursday, April 29, 2004: Issue #333

Here I was in Argentina last week, about to give a speech to subscribers of Steve Sjuggerud’s investment newsletter, True Wealth.

My topic was supposed to be tiny “micro-cap” stocks, but I was hesitant “These folks don’t want to hear about that,” I thought.

So what I revealed in my speech, and what I’ll share with you today, are the five most important things I’ve learned from Steve about becoming a great investor. When I became Investment U’s vice president a year ago, I was very focused on stocks. Watching Steve, I learned that you’ve got to consider everything if you want to build a sound portfolio.

The Five Secrets Evey Investor Should Know

1) Be flexible with your investments.

In the last year, I’ve bought gold coins, I’ve traded commodity futures in my account and I’m closing on some raw land. This diversified approach is what now allows me to make more from my investments than I do from my job.

I now understand that you’ve got to be willing to consider anything, not just stocks, when it comes to investing.

2) It’s all happened before.

Some of the best advice I can give is that it has all happened before. So study financial history. Even 100 years in the past, it doesn’t matter, as the human emotions of fear and greed are the same as they’ve always been – and they’ll never change.

One of the best books on this topic is Devil Take the Hindmost, by Edward Chancellor. If you have not read it yet, you’re missing out. It is a fun read, and you will be a smarter investor after reading it.

3) Limit your risk

Steve once told me: “Novice investors shop for returns, while experts size up the risks, as they know the returns will come.”

You’ve got to assess risk. It’s even more important than what you can potentially make. And you’ve got to limit your risk. Use trailing stops. Limit your position size (don’t bet it all on one position). By doing these things, you’ll never have a “catastrophic” portfolio loss, and you’ll likely make money year in, year out.

4) Assess the tide, not the ships

One thing that surprised me is how much time Steve spends “assessing the tides” of the market. He studies overall markets and asset classes much more than he studies individual securities. When I started working with him, I’d rarely considered “the tide” – I was just looking for a hot stock.

Now I understand his 1-2-3 Stock Market Model. And concerning stock prices, I do believe Steve is right when he says, “A rising tide raises all ships (and vice versa), so assess the tide not the ships.”

5) When everyone owns something, it’s too late

Whether it’s China in late 2003 or the dot-coms a few years ago, you simply must avoid what’s popular. I fell into this in 1999, putting a lot of my eggs in the tech-stock basket. I made a lot of money for a little while, then I got crushed.

Buying what nobody else wants is extremely hard to do. But that’s the way you make money.

These five principles have made me a much better investor, miles ahead of where I was a year ago. If you can learn these now, maybe you can prevent yourself from making the mistakes I made before I met Steve.

Good investing,

Brian Hunt

Today’s Investment U Cribsheet

• In today’s letter, I recommended checking out Devil Take the Hindmost, by Edward Chancellor. It’s a great book, which is why Steve has recommended it to so many of his friends and fellow investors over the years. To get your own copy, just visit http://www.amazon.com/exec/obidos/ASIN/0452281806/theoxfordclub

• Nordic American Tanker – Income and More
• Position Sizing: How to Limit Risk & Maximize Gains
• Casinos Returning to Blue Chip Status

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