The Rules of Investing: Ignore Them at Your Peril

Should investing be governed by simple rules? It not only should be. It.
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flying money american dollars ...
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Should investing be governed by simple rules?

It not only should be. It must.

Rules are less about guaranteeing success than preventing failure. Just as rules in the operating room safeguard against infection, and rules in the cockpit forestall crashes, rules for investing ward off ruin. They don't guarantee riches any more than a simple rule about handwashing will transplant a kidney.

That only makes them more important, not less so. If you can't prevent failure, you can't succeed. With investing, rules are especially important because the temptation to do dumb things is everywhere. Buying stocks can start to resemble gambling. When it does, bad things happen. A disciplined approach is required: one which imparts emotional distance, buffers the investor against impulse, and nips unwise decisions in the bud.

In my years as a money manager, I've distilled investing principles into 10 rules. They might seem obvious -- but are more often honored "in the breach than the observance" (to mangle Shakespeare).

They are easily ignored at anyone's peril:

  1. Every topic in the investment world can be broken down to the basic concept of supply and demand.

  • If someone claims an investment is risk-free, run the other way.
  • Bigger returns mean bigger risks.
  • Hedging may help, but there's always a cost to it.
  • As Warren Buffett says, "If you're smart, you don't need leverage; if you're dumb, it'll ruin you."
  • You may not be able to count on your stocks, but you can always count on your taxes.
  • By the time you invest in a foreign country, it shouldn't be foreign to you.
  • Owning a home is (still) the best investment of all.
  • Investing without work is gambling: Treat the market like roulette, and you'll land on zero.
  • Counterintuition, not intuition, is the investor's best friend.
  • This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and your individual financial situation. All investment involves risk of loss.

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