Successful investors are those who have learned from failures or from making the smart move. These people have gained great wealth and they have also listed down Investing rules for you to learn. However, the common aspect most experts point out is the fact that stock markets are always fluctuating, and the investor should bear that in mind.
Here are the top 6 rules to learn from top 6 investors:
Rule 1. It’s far better to buy a wonderful company at a fair price than buy a fair company at a wonderful price. — Warren Buffet
Warren Buffet, widely known as the world’s most successful investor has this great advice for investors. Identifying high-quality companies, knowing when to buy them and possessing the patience to hold on to them should be an investor’s goal.
When you identify a company that has had high profitability consistently and also has a competitive advantage, it is extremely likely that this company will continue to remain. This allows the company to reinvest profits to earn higher profits. Only after you have confidence in the company, you should evaluate the price.
Mr Buffet is one of the world’s richest individuals and he’s made wealth out of investments.
Rule 2. Invest for long-term. — Philip Fisher
Philip Fisher is known as the father of growth investments. He often approached investments as buying and holding. He has written several books on investment strategies including Common Stocks and Uncommon Profits which made it to the New York Times’ Best Seller’s list.
He mainly focussed on growth stock of small and large companies. According to him, the growth stock of start-ups or young companies offer the best possibility for future gain, He suggested that investors conduct a good amount of research before investing.
Rule 3. Do you really like a particular stock? Put 10% or so of your portfolio on it. Make the idea count. Good ideas should not be diversified away into meaningless oblivion. — Bill Gross
Bill Gross is the co-founder of Pacific Investment Management Co. (PIMCO). PIMCO Total Return funds are one of the largest bond funds in the world. Diversification is a common and efficient rule for investing. Making a profit in the Market is about taking possibilities based on research. Do not be afraid to take chances when your research is pointing to a great investment.
Rule 4. Be patient with winning trades; be enormously impatient with losing trades. — Dennis Gartman
Dennis Gartman started publishing The Gartman Letter, which is a commentary of global Capital markets, Mutual Funds, hedge fund, brokerage firms, trading firms and more. He points out at the mistake investors usually make. Don’t sell at the first sign of profits and don’t let a losing trade getaway.
Rule 5. But investing isn’t about beating others at their game. It’s about controlling yourself at your own game. — Benjamin Graham
Benjamin Graham is known as the father of Value investing and has also inspired Warren Buffet. In the investment Industry, Mr Graham is also known as the father of security analysis and value investing. He encouraged the common-sense approach toward investing.
His investment strategy is about buying low and selling high. He focused on companies with above-average profit margins and sustainable cash flows. He believed in investing in companies having low debts. He would buy assets when there was a bargain and sell it when holdings were overvalued.
Rule 6. Know what you own, and know why you own it. — Peter Lynch
Peter Lynch is known as one of the world’s most successful business investors. He retired at the age of 46. Mr Lynch managed the Fidelity Magellan fund whose assets increased from $20 million to $14 billion within a period of 13 years. He advised that average investors should invest in companies they understand and are able to reason as to why they have invested there.
Invest in assets you know and understand rather than those you don’t understand. For example, if you understand pharmaceutical companies over others, invest in pharmaceuticals and have a reason why.
Conclusion
Investment is a skill that an investor has to incorporate within himself. It can be learnt if the investor is ready to research well before investing. The investor should understand the ups and downs in the market before investing and take risk accordingly.
As a seasoned investment expert with a comprehensive understanding of financial markets and successful investment strategies, I can affirm the valuable insights provided in the article. Let's delve into the concepts discussed by the top investors and the rules they've established:
1. Rule 1 - Warren Buffett: Quality Over Price
- Concept: Warren Buffett emphasizes the importance of investing in wonderful companies at a fair price rather than settling for a fair company at a wonderful price.
- Explanation: Identifying high-quality companies with consistent profitability and a competitive advantage is crucial. Investors should focus on companies with the potential for sustained growth and the ability to reinvest profits effectively.
2. Rule 2 - Philip Fisher: Long-Term Investing
- Concept: Philip Fisher, the father of growth investments, advocates for long-term investing by buying and holding stocks.
- Explanation: Fisher's approach involves researching and investing in growth stocks of both small and large companies. He believes that the best gains come from the growth stock of start-ups or young companies, and investors should hold onto their investments for an extended period.
3. Rule 3 - Bill Gross: Concentrated Investment
- Concept: Bill Gross recommends putting a significant portion (around 10%) of your portfolio into a stock you truly like, avoiding over-diversification.
- Explanation: Gross advises investors not to dilute the impact of good ideas by spreading investments too thin. Concentrated positions in stocks that you have strong confidence in can lead to more meaningful returns.
4. Rule 4 - Dennis Gartman: Patience in Winning, Impatience in Losing
- Concept: Dennis Gartman advises patience with winning trades and impatience with losing trades.
- Explanation: Gartman's principle is centered on not selling winning positions prematurely and swiftly cutting losses to minimize the impact of unsuccessful trades. This approach helps in maximizing gains and limiting losses.
5. Rule 5 - Benjamin Graham: Self-Control in Investing
- Concept: Benjamin Graham, the father of value investing, emphasizes that investing is about controlling oneself, not outperforming others.
- Explanation: Graham's common-sense approach involves buying low and selling high, focusing on companies with solid fundamentals, sustainable cash flows, and low debts. Investors should exercise self-discipline and avoid being swayed by market trends.
6. Rule 6 - Peter Lynch: Know What You Own
- Concept: Peter Lynch advises investors to know what they own and understand the reasons behind their investments.
- Explanation: Lynch's strategy involves investing in companies that investors comprehend and can justify. Knowing the ins and outs of your investments helps in making informed decisions and avoiding investments in unfamiliar sectors.
Conclusion:
- Investment is portrayed as a skill that requires thorough research and understanding of market dynamics.
- Investors should be aware of market fluctuations and tailor their risk-taking accordingly.
- Learning from successful investors and adopting proven strategies enhances an investor's ability to navigate the complexities of the financial markets.
Incorporating these principles into one's investment approach can significantly contribute to long-term success in the dynamic world of finance.
