Learn how to make top rules of stock investing which great investors followed. These rules will help you to become good investor in the long term. Here I will discuss some important rules that the top investors like Warren Buffett followed to make huge income from stock markets. I offer a course on long term investing to retie rich, it is obvious nothing from the course is written here.
Make A Set Of Rules After Experience And Stick To Them
If you do research on successful investors you will find that they made a set of rules and followed them for the rest of their lives. They never deviated from the set of rules whatever happened to markets. These rules were made after a thorough research for years spending thousands of dollars not just sitting in an AC room and looking at charts.
People like Buffet never looked at charts but they looked at current valuations of the stock vs the probability of future valuations. If they were attractive he bought the stocks. Charts do not and cannot predict future valuations, therefore he never bothered about what the charts said.
How to make the rules?
Your initial blunder investing and mistakes you did in investing teaches you a lot. These mistakes thought a lot about setting rules of trading and investing to me too.
You jumped in stock markets trading as soon as your demat trading account was opened, dreaming big. It’s obvious you did a lot of mistakes initially. Make a set of rules on what worked and what did not work, when you traded.
Then do some more research on the set of rules before finalizing them.
Another way to define set of trading rules to ask people who are successful trading and follow them. Some of them give courses as well. Before doing any course you must see testimonials of real clients who have done their course and are doing well or not. If they have a website, their website itself is a good proof of the knowledge they have and their capabilities as a trader.
There is nothing wrong in paying a course provider to do a good course. It takes their time to help you that’s why there is a charge. But the course fee should be affordable and reasonable. Or you can do research yourself. A course saves your time and money to do research.
It took me more than 2 years and 3 lakhs to make this conservative strategies course. Since its your money I leave it to you if you want to do my course or not. You can see testimonials and decide yourself.
Patience Is Important
When I was a intraday day trader I was very impatient. As soon as the trade got completed, I used to keep looking at the trade to see whether it was making a profit or not. If it was not making a profit I used to take a stop loss within 5 minutes.
The above is not trading, its gambling. There is less than 1 percent chance that a gambler makes money. Obviously I too lost money.
If you are an impatient trader you will never make money.
Dennis Gartman, a very successful investor once said, “Be patient with winning trades, be enormously impatient with losing trades. Remember it is quite possible to make large sums trading/investing if we are ‘right’ only 30% of the time, as long as our losses are small and our profits are large“.
If you are impatient it is better to hedge your trades. Hedging makes sure your losses are capped, as a result over a period of time your profits exceed losses. My course has strategies which are fully hedged to cap losses.
Read what he said carefully, there is a high chance that you too do the same mistake in your trading career therefore you lose money. 95% investors make this mistake and lose money.
Let wining trades run. Do not sell as soon as you see profits coming. On the other hand br very strict with your stop loss.
Whatever stop loss you have set, be impatient as soon as the stop loss is hit and exit the trade.
Good traders are ok with losing some money but are not at all ok with losing a lot of money in a single trade.
The money you make in winning trader must far exceed the losing trade loses
Warren Buffett – The Legendry Investor of All Times Said This – “It’s Far Better to Buy a Wonderful Company at a Fair Price than a Fair Company at a Wonderful Price“.
I personally follow this since the day I read it. Another great thing he said was:
“Buy When Everyone is Selling and Sell When Everyone Is Buying“.
I follow this as well.
Mr. Buffett talks, world markets move based on his words. In fact governments appointed persons managing finances of a country leave everything aside to listen to what Warren Buffett says. His words are so powerful.
The letter to his investors are included in college finance classes in the largest and most prestigious universities in US and many other countries.
His basic principles of Investing is:
1. When evaluating a company, look at the quality of the company and the price. He mostly used to see the company’s balance sheets, listen to conference calls and the way management worked. After this he used to evaluate the price of the stock.
If the company looked good, he bought it. Price for him was secondary.
If the company looked bad, he never bought it even if the price of the stock was cheap.
Bill Gross a Fund Manager says, if you like a stock do not put more than 10% of your investment capital on it.
However here is where I differ slightly explain in my invest well course.
Diversification is Good, but too much diversification is not.
Some of your chosen stocks give great opportunities to buy. Always keep some money on hold to invest in these stocks as soon as you get the opportunity.
Prince Alwaleed Bin Talal – an investor from Saudi Arabia and founder of Kingdom Holding Company once said, “We’re getting hurt, but I’m a long-term investor“.
How true is that. Let us go back to 2008 when recession stuck stock markets all over the world and 99% people backed out of stock markets making huge losses. I was too one of them.
But just imagine people such as Prince Alwaleed Bin Talal, he am sure may not have taken out all his investments, in fact would have bought more especially those companies that were high in quality. Today he must be making millions of profits.
Most of the investors who lost a lost of money in that period must have still not received their money back. He has a lot of real estate investments in India as well. Not sure how his real estate business is doing.
Carl Icahn, a big investor in companies such as Time Warner, Yahoo never listens to his friends or brokers or tip providers. He once said, “You learn in this business, if you want a friend, get a dog.”
Indirectly he is saying do not listen to your friends as far as investing is concerned. Its is not a personal thing. It is good to have friends for social gatherings and fun but it is better to avoid their advice on investing.
Carlos Slim, also a great investor looked for investing in companies with a great growth potential in future. Like what Warren Buffett did with Coca Cola – his biggest investment till date.
No one was willing to buy Coca Cola, but Buffett bought and made millions.
Carlos Slim says that do not look what is happening now, instead try to figure out what may happen in the future to this company.
Basically he used to invest in mid-cap and small-cap companies.
It is always good to follow legendary investors.
After a lot of research I have made a course on long term investing and financial management. You can read about the course here.
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You can read about me here and my trading mistakes here.
Dilip Shaw, Founder
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