Every investor needs a self created list of rules to invest by so that they stay disciplined and successful. Many investors learn the hard way what the do’s and don’t's of the stock market are, but fail to write them down so that they don’t repeat these mistakes over the course of their investing career. You need to make a list of rules to invest by yourself, and this article will show you how to do that.
But before we get into the process of creating a list of rules, you may be asking yourself “why do I need to make the list on my own?”. No, it’s not because I’m too lazy to give you a specific rule list, it’s because each investor has their own strategies, goals, and styles that make them different. So a list of rules that might work for one investor might be terrible for another. With a list of rules to invest by created by yourself, you can use your own experience to identify what works and doesn’t work for you. If you have no experience in the stock market, scroll down to the section titled “My own rules” to see my personal set of rules for investing to give yourself an idea of where to start when creating your rules.
Creating Your List of Investing Rules
Creating the Do’s…
Think of all the investments you made this year that were both rational and successful. What similarities did these investments have in common? Try to isolate these similarities and find ways that they can be made into rules. For example, if you made several investments in stocks with good fundamentals and they were all successful, a good rule to create would be “only invest in stocks with good fundamentals”. Your list of “Do’s” should consist of rules that will always be a good foundation for choosing stocks to invest in.
Creating the Don’t's…
Now think of all the investments you made this year that were unsuccessful and/or irrational. Think about what made these stocks poor investment choices and what was ultimately wrong with them. As an example, suppose you invested in a stock just because you heard about it from some market analyst on television and invested solely by that analyst’s advice. So your rule would be to “never invest by analyst opinion alone”. Opposite to the list of “Do’s”, your “Don’t's” list should consist of rules that contain all of the wrong reasons to invest in stock.
Remember: You don’t need a list of investing rules that is longer than most fictional novels. Keep it simple and stick to the universal rules that will make you a successful and rational investor.
My Own Rules
- Invest in stocks with strong fundamentals
- Stay up to date with the stock market on a daily basis
- Do research on a stock before buying/shorting it
- Diversify your portfolio
- Sell some shares on a high performing stock that may have peaked
- Stay unemotional under all circumstances
- Go by your gut feeling
- Let momentum be the only reason for investing
- Attempt to trade market volatility
- Rely on analysts’ opinion alone
- Let the fear of failure become an obstacle
Oh, and the golden rule for investing: Buy low, sell high.