Ten Rules To Investing

Firstly welcome to the Financial trading section of LTO. This being a brand new area, I thought it would be a good idea to stipulate some of the rules to investing and over the next week or two I will really delve into them.

I believe this is a very good starting point as it is often most overlooked! In case you have not already it may be a good idea to read my profile and why I am qualified to be the author of this particular section.

Rule 1 - The trend really is your friend.

In other words, don’t fight the flow! There are too many investors who believe they are right even when they lose money. They keep hold of losing trades in the hope it will turn around, seldom does this work unless you have a very large bank and have risked a very small % of your bank. IE less than 0.5%.

Rule 2 - Keeping hold of your full position when in profit.

This may sound a little strange but if you don’t sell your positions that are in profit you will never succeed. The key is to sell parts of your portfolio in order to lock in profits. Some will naturally look and say they could have made more money, well, it’s a given fact that prices increase slowly but drop quickly…

Rule 3 – Cut your losses quickly.

Again this may sound obvious but you will be surprised as to how many investors will not want to sell at a loss. Eventually all prices will come down and not only will you have made a loss but inflation would have eaten away at your portfolio resulting in further unseen losses.

Rule 4 – The real secret to wealth building is compounding.

Compounding will catapult your portfolio gains, don’t be fooled though, it will take time but eventually you will see your gains exceeding your initial investment whilst risking only a small % of your holdings!

Rule 5 – Get the best value.

An old method was to use the PE (Price Earnings Ratio) in that anything under 7 or 8 was seen as good value. This is slightly misleading as many risky stocks, such as Tech or Drug stocks will typically have yields well over 20. Other “safe” stocks like Vodafone or Tescos will typically have much lower PE ratio’s. The key is to finding what sectors average yields are and then work accordingly to your chosen stocks within those particular sectors.

Rule 6 – Investing is a lifestyle not a quick monetary gain.

Prominent investors who are plastered all over CNBC did not make their money overnight. It does take time and you absolutely must be prepared to take losses because I guarantee you there will be losses. Just telling you the truth! Overtime, should your strategy hold up, which in the future course of my writings I shall be showing you proven strategies, you should make monetary gain.

Rule 7 – Start as soon as possible and don’t touch your funds.

Paper trading is great when first starting out but it does not yield real financial gain. When you have proven systems in place you should start to capitalise on them as soon as you are able to. In respect of not touching your funds, this complies with compounding. The longer you leave your funds actively working for you’re the better the overall longer term results should be. This is not the same as buying and holding stocks as you will see in rule 8.

Rule 8 – Do not buy and hold.

Buying and holding stocks is in essence and eventual death sentence to your portfolio. If you had bought stocks and held them you would have lost the majority of your initial amount. Take into account inflation and almost all of it would have been lost. Again, buy and hold is not a strategy.

Rule 9 – Limit your risk.

This may sound blatantly obvious but again so many do not limit their risk. Of course you have to take risk but not all investments have the same risks and not all types of investments contain the same risks. Think of successful investing as Rule number 10.

Rule 10 – Do not lose money.

Warren Buffet has only 3 rules and they are, do not lose money, do not lose money and do not lose money. The other secret to successful investing is not how much you actually make but how much you keep!

In the coming weeks I shall be discussing these rules in more depth and when I feel they have been covered I shall be reviewing products & services so you do not have to. What this will mean for you?

You will save your money for real investing and not wasting it trying to find the holy grail of a product…doesn’t exist…other wise every investor would be using it!

What I will do is find you products and services that will greatly enhance your trading and also enhance your knowledge, experience, capabilities, interest and know how that should lead you to becoming a disciplined successful trader.

Alan