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I’ve been asked to write a chapter for a book entitled Professional Investor Rules. I’m both flattered and somewhat intimidated – other chapter contributors include John Bogle, Niall Ferguson and Bill Gross.
I thought you might be interested in my ten rules. Today’s post is the quick-read version. Future Newsletters will elaborate on particular rules. Regular Newsletter readers will be familiar with most of the principles, but I hope you still find this summary useful.
The investor rules
- Understand before you buy
If you don’t understand it don’t buy it. View shares as part ownership of a business, not as gambling counters in a game of chance, where you barely understand the rules. Be a business analyst (rather than a share analyst).
2. Small investors can outperform the professionals
The thoughtful, dedicated private investor can outperform the professional fund manager due to his/her many advantages, including the ability to concentrate a portfolio on only the top ten bargains; to take the risk of being different from the herd; to avoid institutional constraints, and; to find good companies from everyday experiences.
3. The market is there to serve you, not to guide you
Many people treat market prices as a guide to the value of a share. The market, in its manic-depressive fashion, often sets prices that are far from the true value of the business. Be independent, do your own valuations and exploit prices rather than being led by them.
4. Remember the difference between investing and speculation.
The distinction is not determined by type of security you buy, nor by the length of time you hold, but by the attitude of mind when you buy. An investor conducts thorough analysis to understand the underlying business, only buys when reassured as to the safety of the principal committed………………………….
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