The 20 Golden Rules of Investment

Investing your own money is a complicated and potentially dangerous business. One slip in the tricky world of stocks and shares can prove very costly. So Times Money offers a guide on how to survive and profit in the investment jungle.

1) Buy low; sell high.

2) Don’t chase performance. If you like a stock or fund, buy on the dips.

3) Run your winners. In other words let your profts roll up and don't be in too much of a hurry to kiss goodbye to your best-performing investments.

4) Cut your losses before they become excessive.

5) Never get too attached to a share or a fund. As the late Sir John Harvey Jones once said: “You sometimes have to kill your favourite children.”

6) In general, think long-term. As Warren Buffett, the great US investor once said: “Never buy a stock unless you would be happy with it if the stock exchange closed down for the next 10 years.”

7) But don’t let that stop you reviewing your portfolio regularly. You need to check that your portfolio is properly balanced.

8) Reinvest your dividends. The power of compounding your reinvested share or fund dividends makes a massive difference to your overall return.

9) Don’t put all your eggs in one basket. If you had had all your money in tech stocks in March 2000 you would probably have had about 90 per cent of the value of your portfolio wiped out over the next couple of years.

10) Although it makes sense to hold shares for the long term you don’t necessarily want to hold them forever. In the end shares are for buying and selling not for buying and forgetting about.

11) To that end make sure you spend as much time thinking about selling shares as you do about buying them. Most investors neglect this vital discipline.

12) Make sensible use of tax-privileged investment vehicles such as pensions and Individual Savings Accounts (Isas) but never let the tax tail wag the investment dog.

13) If you don’t understand how a particular investment works it’s probably not a good idea to put money into it.

14) Don’t be afraid to ask the ‘what if’ question. In the late 1990s many investors bought supposedly ‘low risk’ savings products linked to the performance of the stock market. Few  asked what would happen if the stock market fell off a cliff, as it did from 2000 onwards, slashing the value of the so-called ‘precipice bonds’.

15) Be flexible and don’t back yourself into a corner. If you bought a stock for 500p and it’s now languising at 50p, don’t stubbornly hold on to it indefinitely in the misguided belief that it’s bound to recover to 500p - it may never do so.

16) Don’t be afraid to go against the crowd - some of the most successful investors have been contrarian investors.

17) Never be influenced by ‘special offers’ such as the discounts sometimes advertised by fund groups for purchasing funds within a specific time. It’s much better to buy the right fund than to get a few pounds knocked off the purchase price of the wrong fund.

18) Ignore all stock market ‘tips’, whether offered in the workplace or at the nineteenth hole of the local golf course. Remember the old stock market adage that “where there’s a tip there’s a tap”.

19) Never get too carried away by investment euphoria, whether for stocks and shares or bricks and mortar - nothing goes up for ever.

20) Remember that if something looks too good to be true - it probably is.

Image courtesy of Leo Reynolds

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Comments

[Dave Livingston]

An even better rule for profitable investing is to heed what I do & then do the opposite. :)

[マネーパートナーズFX 手数料無料]

Thank you for very useful information.
I am always enjoying your article.

[Frederick]

The most important ones has been left out "don't borrow to buy shares and don't forget greed gets us all in the end". I go fishing and have just cut up my credit card,.

[Chris Coles]

This single sentence brings all our problems into sharp focus "In the end shares are for buying and selling not for buying and forgetting about." This is not a set of rules for investment; it is a set of rules for share trading. Further, by anyone including our Savings Institutions. Trading, in any form, is simply just another business like any other business. Investment, particularly of the savings of the nation back into the long term needs of the nation needs a quite different set of rules, rules that were abandoned by Slater Walker in the 1960’s and by every savings institution since. As a consequence, long term investment into the nation, from that moment, ceased. We need a new “Coffee Shop”, a completely fresh start, with new savings institutions and a complete return back to the investment culture that made the United Kingdom so successful in the now long distant past. Share trading is just another business like any other. Investment of the nations savings, back into the nation - is another thing altogether.

[Huw Sayer]

Forget rule one! And don't pay premium rate fund managers to invest your money for the long term - they probably won't be there for the long term - buy a FTSE All Share tracker (the lowest cost one you can find) - buy regularly (monthly investments to get cost price averaging rather committing a lump sum) and hold for 20+ years (anyone who tells you 5 years is long term is mistaken. Remember it is Time not timing that makes you the money.

[A. Choholic]

Rule 21. Do not trust so-called independent financial advisors!

[peter]

Just buy silver, the price is going up like it did in the late 70s, see my trip down memory lane...
http://arabianmoney.net/2008/05/25/silver-is-now-my-top-tip-for-2008-as-abba-returns/

[The Mack Daddy]

Rule 22.Do not pay attention to pathetic "Do not trust so-called independent financial advisors!
" comments.

[ronnie]

Buy wine. Then drink it.

[Harry H]

Rule one should actually be buy high sell higher, according to some book on shares I read!

[Helder Figueira....]

Shouldn't Rule 1 be:

Don't invest what you cannot afford to lose?