“An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.” – Graham and Dodd.
In light of the currently running market correction, and the Facebook IPO, I’m proud to say that my portfolio has done relatively well. I can attribute this to some very basic rules:
1. Avoid speculation. My FB minifeed has been flooded with “I’m now a part owner of facebook!” As much as I wish you all the best of luck in your investments, I cannot say you made a good decision. Given the current direction of the market (which should govern much of your investing decisions) and news about facebook, I just want to say I told you so.
2. Slow and steady. The key to investing is understanding that you will not instantly become a millionaire. And as with anything, practice makes perfect. Studying the market takes an incredible amount of work and patience. Not every single one of your decisions will make you money, and as long as you learn to limit your losses you can be successful.
3. Hedge. Even with preparation, things fail. Entropy always wins, and you are simply not in control of earnings, rumors, and the general future. You must hedge. Even some fundamentally sound companies have failing stocks. Putting bets in multiple places can significantly reduce your risk.
4. Stop loss. Always, always, always set stops. I cannot stress this enough. Unless you are making this a career, you simply will not have enough time to pay attention to each and every stock at every moment of the day. Sudden swings can leave you in a deep ditch. Always set stops.
Fundamentals will tell you which stock to buy. Technicals will tell you when to buy. If you are new to this, I suggest you read and study first. Missed money is always better than lost money.