The following ideas are selected from the ebook I read a while ago. Apparently, these ideas have helped the author (Greg Speicher) to become a better investor, and I believe they will help us too. Read them, study them, and let them inform your investment philosophy and process. Good luck to all of you and HAPPY WEEKEND!
“Know what you own, and know why you own it.”
– Peter Lynch
- Act like an owner. Owners think differently – more seriously. They naturally focus on the right issues: cash flows, competitors, keeping and delighting customers.
- Only buy what you understand. This should be completely obvious but people ignore it all the time. They trick themselves into thinking they will miss opportunities if they restrict themselves. IT’S HARD ENOUGH TO VALUE WHAT YOU DO UNDERSTAND. YOU CAN’T VALUE WHAT YOU DO NOT.
- Buy good businesses. Nobody has a gun to your head. Why not invest your money in the best companies? You’ll take less risk and get better results, as long as you don’t overpay.
- Practice mega-patience. This is the one quality virtually every investor needs more of. Figure out how to be more patient. Find whatever hacks you need to modify your behavior. This is a big one!
- Be a learning machine. In the investing game, you are either keeping up with your reading and learning or falling behind. (Internet surfing doesn’t count.)
- Get enthusiastic about what you are doing. Nobody ever accomplished anything great without passion.
- Watch out for relative valuations. Just because something is cheaper than its peers, it does not mean that it’s cheap based on intrinsic value.
- Write down why you are buying a stock before you buy it! Buffett has been pounding the table on this one for years. Too few actually do it.
- Look for catalysts when you invest. They improve your rate of return by closing the value gap in less time.
- When you buy a stock, try to figure out why it is selling at a bargain. If you can’t figure it out, you may be the sucker at the poker table.
- Track your performance. If you want to improve, you need to be brutally honest with yourself. Pick a reasonable way to do this that does not over emphasize the short and medium term.
- Use checklists. Some of the smartest people do this. They will help your performance. If you’re good, you’ll get better. If you’re already good… Just do it! MOST SKIP THIS IDEA.
- Stay humble. Some very smart people have done some very stupid and costly things when they thought they had it all figured out.
- Make meaningful investments. (Some diversification is prudent. The future is unknowable and you need to hedge against this.) But, don’t overdo it. Over-diversification is not rational if you know what you’re doing, and it’s a formula for mediocrity.
- Be (very) skeptical of stock recommendations. Pay attention to who is making them and why. Pay attention to incentives. They rarely align completely with your own.
- Lowest average cost wins. Be prepared psychologically and financially to buy more shares if a stock you purchase goes down in value.
- WORK HARD! This is the great equalizer and something you can control. The most successful people in society have echoed this advice. All else being equal, this is the X factor.
- Remember that investing is based on careful and thorough analysis. If you skip this step, you are, de facto, speculating.
- Think independently. If you can’t learn to confidently do this, you probably should not be actively investing. It is comfortable to have others agree with you, but, often, it tells you little about whether you are right or wrong.
- DO NOT OVERPAY (REPEAT: DO NOT OVERPAY). This is the biggest and most common mistake. Don’t do it. All too often, investors fall in love with a stock and feel like they must own it. Be willing to walk away if the price is too high.
- Don’t worry about short-term volatility or “what the market did today”? Most of it is meaningless. The same can be said for the reasons proffered by financial journalists to explain market action.
- You can’t pick the bottom! You can learn to value securities and buy them when they are on sale.
- You do not need a super high IQ to be a successful investor. Buffet argues that it is more important to have the right temperament.
- Keep it simple. Accept the fact that you won’t understand many – if not most – businesses and how to value them. Develop the habit of not worrying about it.
- There are many things in life that are more important than money.