*Editor's note: With proper research and focus, instead of overwhelming confusions, value investing is much easier than many people make it to be. Investing for a comfortable future is actually within everyone's ability. Bill Spetrino gives some great reminders in this article to keep us on that path.
Investing is not as hard as it seems. Just remember these 7 rules that, unfortunately, many of you violate.
1. Do NOT time markets. If you could, that means you can retire from your day job and show your tax returns to prospective investors to start a hedge fund.
2. Do NOT own more than 5 to 8 positions. I understand diversification, but you can’t realistically follow more than 8 stocks. You will overwhelm yourself. And honestly, there is a usually a huge difference between stock #1 and stock #8. The best thing I ever did was swap out my positions in Johnson and Johnson (JNJ), Burlington Northern Santa Fe (BNI) and Kraft (KFT) for Altria (MO). I switched several low dividend stocks for a high dividend stock and it really fired up my dividend machine big time.
3. Do NOT worry if your investment doesn’t run up right away. Warren Buffett has had 5 stocks that dropped big time when he started buying them: Washington Post, Interpublic, Wells Fargo on 2 occasions, Anheuser Busch, and Burlington Northern Santa Fe.
4. Sell something to buy in layers into something that drops drastically. I sold my Abbott Labs (ABT), Cisco (CSCO) and Altria (MO) options in 2011 to buy Bank of America (BAC) under $7 dollars. Bank of America was at $12.94 a couple of days ago. See how well that worked out?
5. Do NOT spend much time less than 95% invested. I have been doing this for 20 years now and I don’t remember any time where SOMETHING wasn’t cheap and priced to make 10%+ annually. Even though my Apple (AAPL) investment is underwater, I’m up for the year significantly because I’m invested and made good money on SVU, MSFT, INTC and MO options. Now, I am down on all the money i rolled into Apple so far, but with a large part of my portfolio in a very UNDERVALUED depressed stock, I have great potential going forward.
6. Be patient when your positions move against you. Remember, investing is all about irrational markets. Many short term momentum players neglect great value stocks like Bank of America BAC when it was $5 or $6 because they just can’t take the pain of a falling stock price. If you can’t master this trait, you will never outperform the market.
7. Do NOT short stocks or bet against the direction of the market. The way to make money investing long term is to buy imagined fear layer down and wait for the market to recognize the value.
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