10-Investing Axioms Every Investor Should Learn

3) You Can’t “Buy Low” If You Don’t “Sell High”


Most investors do fairly well at “buying,” but stink at “selling.” The reason is purely emotional driven primarily by “greed” and “fear.” Like pruning and weeding a garden; a solid discipline of regularly taking profits, selling laggards and rebalancing the allocation leads to a healthier portfolio over time.

Most importantly, while you may “beat the market” with “paper profits” in the short term, it is only the realization of those gains that generate “spendable wealth.”

4) Patience And Discipline Are What Wins


Most individuals will tell you they are “long-term investors.” However, as Dalbar studies have repeatedly shown investors are driven more by emotions than not. The problem is that while individuals have the best of intentions of investing long-term, they ultimately allow “greed” to force them to chase last year’s hot performers. However, this has generally resulted in severe underperformance in the subsequent year as individuals sell at a loss and then repeat the process.

This is why the truly great investors stick to their discipline in good times and bad. Over the long term – sticking to what you know, and understand, will perform better than continually jumping from the “frying pan into the fire.”

5) Don’t Forget Rule No. 1


As any good poker player knows – once you run out of chips you are out of the game. This is why knowing both “when” and “how much” to bet is critical to winning the game. The problem for most investors is that they are consistently betting “all in, all of the time.”

The “fear” of missing out in a rising market leads to excessive risk buildup in portfolios over time. It also leads to a violation of the simple rule of “sell high.”

The reality is that opportunities to invest in the market come along as often as taxi cabs in New York City. However, trying to make up lost capital by not paying attention to the risk is a much more difficult thing to do.

6) Your Most Irreplaceable Commodity Is “Time.”


Since the turn of the century, investors have recovered, theoretically, from two massive bear market corrections. After 15 years, investors finally got back to where they were in 2000,.

Such is a hollow victory considering that 15-years to prepare for retirement are now gone. Permanently.

For investors getting back to even is not an investment strategy. We are all “savers” that have a limited amount of time within which to save money for our retirement. If we were 15 years from retirement in 2000 – we are now staring it in the face with no more to show for it than what we had over a decade ago. Do not discount the value of “time” in your investment strategy.

7) Don’t Mistake A “Cyclical Trend” As An “Infinite Direction.”


There is an old Wall Street axiom that says the “trend is your friend.”  Unfortunately, investors repeatedly extrapolate the current trend into infinity. In 2007, the markets were expected to continue to grow as investors piled into the market top. In late 2008, individuals were convinced that the market was going to zero. Extremes are never the case.

It is important to remember that the “trend is your friend.” That is as long as you are paying attention to it and respecting its direction. Get on the wrong side of the trend, and it can become your worst enemy.

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Disclosure: The information contained in this article should not be construed as financial or investment advice on any subject matter. Real Investment Advice is expressly disclaims all liability ...

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