10 Timeless Investing Principles
You can implement every single one starting today
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In today’s newsletter, I will cover 10 investing tips that should be beneficial to you no matter your experience in the market. These are principles that took me years to sharpen and I continue to work on them on a daily basis because you truly can’t ever perfect them.
As always this is not financial advice only my opinions 😊.
1. Know What You Are Buying
It's horrific how many people buy a stock and have done ZERO due diligence on it. In today's day and age with the internet at your fingertips, there's simply no reason to not at least look up a company's balance sheet or income statement. People spend an incredible amount of time researching what type of car they are going to buy by visiting multiple dealerships, looking at the carfax, test driving - but when it comes to stocks a large majority of people have a tendency to just throw their money into anything without even knowing the basics of the company.
At the very least you should know:
- What the company does
- What the company sells / How the company makes money
- Is the company profitable (net income positive)
- Is the company’s revenues going up or down
2. Learn the Craft
Knowing what you're looking for in the balance sheet/income/cash flow statement is extremely important and can set you on a rocketship path to investing success. Study all three of these documents and know the ins and outs of them like the back of your hand.
Here is a fantastic place to start:
3. Have a Plan
You usually take 3 routes when investing stock: holding long, swing trading, or day trading. Before you enter a position you should have a plan for what route you're taking. Each requires different levels of due diligence.
For example:
Holding Long: Requires a lot of research, you are planning to hold stock in the company for years, fundamental analysis is required (balance sheet, income statement, etc.)
Swing Trading: Not as much fundamental research is required but a good understanding of what the company is doing or what is upcoming. In general, a swing trade is entering a position with a 1-6 month time horizon. Often times a swing trade will be for an upcoming event, a seasonal growth for the company, breaking news, a possible merger, etc.
Day Trade: The least amount of fundamental research is required and the most amount of technical analysis is needed (chart pattern analysis, volume, RSI, spreads, etc.) for a day trade. A day trade is exactly what it sounds like: holding a stock for less than a 24 hour period.
The point: Don't go into buying a stock with the idea of it being a day trade and then the stock plummeting causing you to now switch to going long! It more often than not NEVER works out well.
4. Have a "Why"
As Peter Lynch famously said, "Know what you own & why you own it".
If you don't know why you're in a position then you won't know why you should sell for a loss, sell for a gain, add more during a dip, or add on to a position.
No "why" = simply winging a trade and blindly guessing.
I create my “why” before entering a position. If this “why” strengthens or evolves into something better I will add to the position, if my “why” goes away then I sell or reduce my position.
Example: My major “why” for investing in $UBER over a year ago was the thought process that $UBER eats growth would boost Uber’s income to sustained profitability. Recently, a judge struck down Prop 22 and now the courts will decide what the outcome will be. Long story short if Prop 22 is overturned this will significantly hurt Uber’s chance for sustained profitability in the near future.
5. Wait a Day
When I was a novice investor I began to notice that my principles would all fly out the window the second I caught FOMO. “Fear of missing out” can cause you to ignore all your investing principles. When in doubt, wait a day to gather your thoughts and do more due diligence about a company. This also applies to when FUD “Fear Uncertainty Doubt” creeps in. For example, A “bombshell” article bashing your company is released you may panic sell only to find out the report was false 24 hours later. Even big-time finance media companies make mistakes with their reporting so trust but verify.
An excellent depiction of FOMO and panic selling:
6. Know What Type Of Investor You Are
I would argue that when you're a beginner it's important to set a strategy that you can build on. One day a day trader and the next a swing trader can get your principles and mindset confused. Being able to switch will come with experience.
Here’s generally the breakdown:
Super active investor and researcher: You should manage your own portfolio and stay up to date on all positions.
Like the market but don’t have a lot of time: You should probably buy index funds with a mix of some stocks that you had time to research.
No idea what you are doing and don’t have time to find out: You should probably look into getting a financial advisor and be set up with a mutual fund.
7. Study The Craft
Nothing improved my portfolio performance more than when I started to pick up books that educated me about investing & the market. Read, take notes, and have a friend read as well so you can exchange ideas. Newsletters, software tools, books, and much more help me study the craft.
Here's a great place to start: WHERE TO LEARN ABOUT INVESTING!
8. Find People On The Journey
There's a good amount of people that love to help others along the journey to finance education besides me. For starters, if you have any friends or family that are interested in the market creating a “market group chat” is always a fantastic idea. I have several groups in which I bounce ideas off of and share what I am doing in the market. The stock market is massive and there are so many sectors to keep track of - when you have a group of minds searching the field for things become much easier. A huge tool for me is following bright minds on Twitter that share their investment ideas and strategies.
Morning Brew made an amazing list below a while ago:
* @rebelmarkets (my old Twitter handle and now my newsletter handle) is at #3 😤 *
9. Save
If you don't save your money you won't have any money to invest. Only invest what you're willing to lose. The last thing you want to happen is being forced to sell a position early because of outside financial pressure. Another huge thing about having a disposable income is when a market correction occurs you need to have money ready to put into your most confident holdings. Just finding out your monthly budget alone is a HUGE step into saving more and being able to invest more. Below is a free budget worksheet made by Nerdwallet that is very useful.
Easily figure out your monthly budget here
10. Allocate Stress
Stressing over a stock you own?
This likely means it's out of your risk tolerance. Along with this, it might mean you haven't done enough due diligence in the company or it might be holding too much weight in your portfolio.
A rule of thumb for me is if I find myself constantly checking a certain position on a day-to-day or even hour to hour basis that likely means I don’t truly know why I’m in that position and therefore making a gamble. To solve this I need to either do more due diligence, restructure my position size, or sell it all.
Thank you all who read this far.
Have a great weekend! See you for Tuesday’s newsletter!
I know I put this at the bottom of a lot of my emails… but if you just share this with a friend that is curious about investing that would mean the world to me!
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From the streets to the suites