Following on from my earlier post, we now explore the 15 commandments of investing for higher returns with less risk.
If you are investing in stocks and shares as a way to grow your personal wealth and/or income then you need to start following these commandments a.s.a.p. to be able to consistently pick the best shares at the right time and minimize your mistakes.
I’ve said before that the best investors, people like Warren Buffett for example, base their investment decisions on solid analysis of the companies they are considering investing in.
So if you want to become a better investor, like Buffett, you need to do your homework properly before you buy and sell your shares.
Listed below are 15 “commandments” that I recommend you do when picking your shares for your portfolio.
I can’t promise you that you will become the next Warren Buffett, but I can promise you that following as many of these commandments as you can will improve your stock picking results and at the end of the article, I’ll tell you where you can get more help!
1. Thou Shalt Adopt A SYSTEMATIC Approach To Your Investing
Haphazard share picking is one of the biggest mistakes that beginners to stock market investing make.
Beginners read about a company being tipped in a newspaper or on a website and follow the tip blindly, only to lose money.
Avoid this mistake by adopting a systematic approach to your investing so that you can create consistent results and create a feedback loop for learning (more on this down the page).
2. Thou Shalt Base Your Decisions On FACTS Rather Than Opinions
Following the opinions of other people such as share tipsters, journalists, your friends colleagues or your granny is another big mistake.
The best investors ALWAYS base their decisions on sound business FACTS, which they analyze as part of their systematic approach.
If you want to emulate their success, then do as they do.
3. Thou Shalt Take The EMOTION Out Of Your Decision-Making
Beginners often panic when their shares fall in price and get over-excited when they rise in price quickly.
This is your emotions getting the better of you and you need to fight hard to resist your urges in this regard.
If in doubt, read commandments 1 and 2 above again.
4. Thou Shalt Recognize A GOOD BUSINESS When You See One
Long-term investing is about picking more winners than you do losers.
You can’t get it right all the time, nor do you need to.
You just need to recognize a good business when you see one and ride it’s share price upwards over time.
5. Thou Shalt Improve Your Stock Picking Ability And SUCCESS Ratio
When you learn to recognize the best businesses and buy more of them, your ability to pick better shares will get easier and easier.
Do this consistently and over time, your success ratio will improve along with your investment returns.
6. Thou Shalt AVOID Bad Businesses
This is the corollary to commandment 4.
We all buy bad businesses from time to time because share picking is an imperfect science and we are always operating on imperfect information.
The trick is to recognize quickly that we have made a bad buy and cut our losses before it costs us even more money than it has already.
7. Thou Shalt Make FEWER MISTAKES
The more aware you are of what creates a bad business, the less bad investment decisions you will make and the better investment returns you will get.
Buying bad businesses punches big holes in your investment returns and so the fewer of these mistakes you make, the better off your investment returns will be.
To Be Continued…
When I started writing this post, I intended to fit all 15 commandments on this one post but it’s getting too long.
So unfortunately, you’ll have to wait until next week for the remaining commandments!
Sorry about that.
However, I also promised at the top of this post that I’ll tell you where you can get more help and I still have a little bit of space to do that so here goes…
There is no doubt that following the commandments, as I have described here, is key to improving your investment success.
When you get into the habit of following them properly and consistently, you will not only improve your share picking, but you will make fewer mistakes.
Ultimately, you will achieve bigger returns with your investments than you have hitherto, so why not give it a go?
If you’d like to follow a tried and tested process with detailed checklists of what to analyze then you can find out about our Company Analysis Workbook by clicking here.
Otherwise, leave me a comment below about your thoughts on the commandments.