Good morning, let’s get into it!
This is from a Substack original author is Noel Wieder. Enjoy.
1. Price is the Most Important Factor. Always consider price in relation to value. No matter how good a company is, the price you pay determines your ultimate return.
2. Establish the Underlying Value: Determine what the company is actually worth. Remember that a share of stock represents part ownership of a living business; it is not just a piece of paper.
3. Use Book Value as a Starting Point. Use book value to establish a baseline for the enterprise's value. Ensure that the company's debt does not equal 100% of its equity (the capital and surplus for common stock).
4. Exercise Patience: Do not expect immediate results. Stocks often take time to reflect their true value; they don't go up the moment you buy them.
5. Avoid Tips and "Quick Moves" Don't buy based on rumors or "hot tips." Leave the fast-paced trading to the professionals (if they can even do it successfully). Furthermore, avoid the urge to sell just because you hear bad news.
6. Don't Fear Being a Loner. Be willing to go against the crowd, but ensure your judgment is sound. Since you can never be 100% certain, look for weaknesses in your own thinking. Buy on a scale down and sell on a scale up.
7. Have the Courage of Your Convictions Once you have done the research and made a decision based on logic, have the guts to stick with it.
8. Follow a Consistent Philosophy: Have a defined investment philosophy and try to follow it. Consistency is key to long-term success.
9. Don't Be in a Hurry to Sell If a stock hits a "fair price," you can sell, but don't just sell because it's up 50% to "lock in profits." Before selling, re-evaluate the company and its book value. Check the broader market: are yields low? Are P/E ratios at historical highs? Is there too much optimism?
10. Buy Near Multi-Year Lows Look for stocks trading near their lows of the past few years. A stock that dropped from 125 to 60 might look "cheap," but if it was at 20 three years ago, it may still be vulnerable.
11. Buy Assets, Not Just Earnings Try to buy assets at a discount rather than paying for projected earnings. Earnings can fluctuate wildly in a short time, whereas assets typically change slowly. Buying earnings requires much more specific knowledge about the company's inner workings.
12. Listen to Respectable Suggestions (With Caution) Listen to people you respect, but you don't have to accept their advice. Remember that it is your money. It is much harder to keep money than to make it; once you lose a large sum, it is incredibly difficult to earn it back.
13. Manage Your Emotions: Do not let emotions cloud your judgment. Fear and greed are the two most dangerous emotions when buying and selling stocks.
14. Respect the Power of Compounding. Compounding does the heavy lifting. For example, a 12% annual return (reinvested) will double your money in six years (excluding taxes).
The Rule of 72: Divide 72 by your expected rate of return to find out how many years it will take to double your investment.
15. Prefer Stocks Over Bonds. Stocks generally outperform bonds over the long term. Bonds often limit your potential gains, and inflation will eat away at your purchasing power over time.
16. Be Careful of Leverage Debt and margin can easily go against you. Use leverage with extreme caution, as it can turn a temporary market dip into a total loss.
