Investment Advice from Jim Rogers, Warren Buffett and Doug Casey
These investment strategies are derived from the ideas and thoughts of Jim Rogers, Warren Buffett, and Doug Casey among others. This advice has been helpful for me and I hope you too will find it useful applying it on your own portfolio.
The trend is your friend
Look for quality investments in markets where you can identify a positive trend. Then stay in that market until your expectations has been met or until something better comes along. You will notice that it is much easier find a trend and go with the stream rather than fight the current. As in all markets, there will inevitably be corrections along the way so set realistic price target, and sell once you hit those targets.
Be careful with leverage
When someone goes completely broke, it is almost always because he used borrowed money for speculation. Using a margin account puts you at risk because one wrong move or a market correction can completely wipe out your account. You may even be right on the trend, and still be forced to liquidate your position when you get a margin call. If you decide to use leverage, don’t invest money you can’t afford to lose, and decide in advance on how much capital to commit.
Don’t buy every stock
A lot of stocks that look attractive may flash in front of your eyes and you might get an urge to place a bid. But you cannot buy every deal, at least not without selling other positions to make room for new positions. If you buy without selling, you will in no time end up with an unfocused portfolio and be out of touch with most positions. An active investor can keep track of maybe 10 to 15 stocks without losing touch.
Over activity
Most people just can’t sit around and wait for a deal. “One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do. Most people always have to be playing; they always have to be doing something. They make a big play and say, “Boy, I am smart, I just tripled my money.” Then they rush out and have to do something else with that money. They just can`t just sit there and wait for something new to develop.” – Jim Rogers
Don’t Chase Performance
Be disciplined about your orders, set a maximum price that you are willing to pay and then let the market come to you. Don’t chase a stock you think will go to the moon when it has already hit the stratosphere. You may lose out on a couple of homeruns, but you will manage your risk.
Use stop losses
Losses are psychologically difficult to deal with, but it is far better to limit your losses then to let them grow in hope that you will recover one day. Setup stop orders between 10% to 25% below your purchase price depending on the volatility of the stock, and the level of risk you are willing to bare. Then review your stop losses periodically and make sure that you are covered.
Take a free ride
Don’t be afraid to take a profit, particularly if the price has doubled or tripled. No one has gotten hurt from taken their original investment off the table and taking a free ride on the rest. If you are certain that your stock is heading for the moon its ok to stay in for the long run, but decide on a target in advance and sell once the target is reached.
Panic selling
In any market there are good selling and bad selling. Good selling relates to selling for justifiable reasons such as a fundamental problem in the company or the market. Panic selling is associated with selling of quality companies whose stock price plummet for no other reason than that the market participants are all heading for the exit at the same time. This can create a buying opportunity as quality companies that become over sold quickly bounce back.
Buy low
“Be fearful when others are greedy and be greedy only when others are fearful” – Warren Buffett. Panic and fear on Wall Street usually presents excellent buying opportunities and the time to buy is when prices are depressed after everyone else have already sold. Prices tend to overshoot in one direction and then fall more than what common sense suggest in the opposite direction.
Only invest in what you understand
Putting money in any investment or speculation that you don’t fully understand is asking for trouble and it doesn’t matter if your best friend, uncle, or investment advisor pitch you a money making idea. You may later discover some risks or pitfalls you weren’t aware of. You are better off sitting on cash until you find an investment that you fully understand, so you can assess the risks and rewards.
Learn
Take the time to study the businesses and market you to invest in. The more you know, the better equipped you will be to invest. It requires a commitment of time to research companies and markets. Far too many investors and speculators fail to do the basic upfront research before placing a bid and then consider watching a company’s ticker symbol as their way of studying the company.
Start by reading a company’s annual report and its competitor’s annual report. There are also trade journals and investment publications that will provide good information. The more you know the more of an edge you have!
“The best advice I ever got was on an airplane. It was in my early days on Wall Street. I was flying to Chicago, and I sat next to an older guy. Anyway, I remember him as being an old guy, which means he may have been 40. He told me to read everything. If you get interested in a company and you read the annual report, he said, you will have done more than 98% of the people on Wall Street. And if you read the footnotes in the annual report you will have done more than 100% of the people on Wall Street. I realized right away that if I just literally read a company’s annual report and the notes — or better yet, two or three years of reports — that I would know much more than others. Professional investors used to sort of be dazzled. Everyone seemed to think I was smart. I later realized that I had to do more than just that. I learned that I had to read the annual reports of those I am investing in and their competitors’ annual reports, the trade journals, and everything that I could get my hands on. But I realized that most people don’t bother even doing the basic homework. And if I did even more, I’d be so far ahead that I’d probably be able to find successful investments.” – Jim Rogers
Make your own decisions
Don’t let anyone make your decisions for you. Many people have lost entire fortunes because they handed over their decision making authority to their financial advisers and attorneys. History shows that far too many advisers have made risky bets, been dishonest, or right out incompetent. Furthermore, you cannot expect a financial adviser to treat your money with the same care as you do.
http://www.gurufocus.com/news/130886/investment-advice-from-jim-rogers-warren-buffett-and-doug-casey
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