1. An attempt at making a quick buck often leads to losing much of that buck. The people who suffer the worst losses are those who over-reach. If the investment sounds too good to be true, it is. The best hot tip we’ve found is “there is no such thing as a hot tip.”
2. Don’t let a small loss become large. Don’t keep losing money just to “prove you are right.” Never throw good money after bad (don’t buy more of a loser). When all you’re left with is hope, get out.
3. Cut your losers; let your winners ride. Avoid limited-upside, unlimited-downside investments. Don’t fall in love with your investment; it won’t fall in love with you.
4. A rising tide raises all ships, and vice versa. So assess the tide, not the ships. Fighting the prevailing “trend” is generally a recipe for disaster. For example, a profitable homebuilding company will trade down if homebuilding stocks, as a group, are trending lower. In the short run, examine an industry before you buy one of the companies within it.
5. When a stock hits a new high, it’s not time to sell … something is going right. Likewise, when a stock hits a new low, it’s not time to buy … something is wrong.
6. Buy and hold doesn’t ALWAYS work. If stocks don’t seem cheap, stand aside.
7. Bear markets begin in good times. Bull markets begin in bad times.
8. If you don’t understand the investment, don’t buy it. Don’t be wooed. Either make an effort to understand it or say “no, thanks.” You can’t know everything, so don’t stray far from what you know.
9. Buy value and sell hysteria. Paying less than the underlying asset’s value is a proven successful strategy. Buying overvalued stock has proven to underperform the market. Neglected sectors often offer good values. The “popular” sectors are often overvalued.
10. Investing in what’s popular never ends up making you any money. Avoid popular stocks, fad industries, and new ventures. Buy an investment when it has few friends.
11. When it’s time to act, don’t hesitate. Once you’re in, be patient, and don’t be rattled by fluctuations. Stick with your plan … but when you make a mistake, don’t hesitate. Learn more from your bad moves than your good ones.
12. Expert investors care about risk; novice investors shop for returns. If you focus on the risks, the returns will eventually come for you. If you focus on the returns, the risks will eventually come for you.
Excerpted from Investment U’s Profit from Uranium:
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