Note: I will be travelling next week, so there will be no publication of Curiosity@Intelsense next Friday.
In this article, the author discusses how, in 1994, Arthur Zeikel shared some rules of investing as advice to his daughter. Zeikel had decades of experience running Merrill Lynch’s asset management business.
The points below are from the article. I have added my thoughts on some of the points as commentary.
A fool and his money are soon parted.
There is no free lunch.
The market is competitive. Everyone comes here to make money. But in reality, very few people do. If you are unprepared or haven’t done your homework or don’t have the skills, the market can be ruthless and take all your money from you.
Don’t put all your eggs in one basket.
No one knows the future. No one. Not even the promoter of a company. So, don’t be overly concentrated. The first rule in the markets is survival. If you can be around playing the game for thirty-forty years, you have a very high chance of being a winner.
Never overreach for yield.
A lot of people, in their efforts to make money quickly, are reaching for leveraged positions in the F&O market. Unless you know what you are doing, it can hurt you badly. Always think that if money-making was so easy, why isn’t everyone rich? What is that special sauce you have that will make you rich that others don’t?
Spend interest, never principal.
This is very important. Try always to live within your means. If you can protect your capital you will come out fine.
You cannot eat relative performance.
This is one of my mantras that I tell everyone along with another one of my favourites, “You cannot eat your friend’s returns”. Don’t fixate on how much return someone else or some random index has generated. Focus on the absolute returns of your portfolio. That’s what I do.
Don’t be afraid to take a loss.
I have interacted literally with thousands of investors and this is by far, the biggest challenge I have seen with people. They get anchored to their buy price and are not able to take a loss. They keep waiting for the price to come back. And sometimes it is a long, unending wait. People ignore the opportunity cost of capital.
Watch out for fads.
Remember the value of common sense.
Once in a while, you will get some new “New thing”. Some cyclical industry will be touted as having become a structural growth story. Use your common sense.
Make decisions. Freezing up when the market or your holding crashes like a deer in front of headlights, isn’t going to help you. Have a strategy in place and execute it mechanically at times of crisis.
Take the long view.
Even if you are a trader and do swing trades or positional trades and not a very long-term buy-and-hold investor, it is important to take the long view. As Mark Minervini writes in his book, “Think of the next thousand trades.”
Think of your portfolio like a train and the stocks you hold as people getting on and off at their destinations. The portfolio is for the long term but the stocks can vary from time to time based on your strategy.
Thought of the Week
“What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention, and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.” ~ Herbert Simon
Thanks for sharing the info in crisp manner.