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8 Rules That Top Investors Live By

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8 Rules That Top Investors Live By

Investors have been known to disagree.

That’s not a surprise to anyone.

However, there are some fundamental truths that anyone looking to invest and profit from the market should live by.

There are rules, a set of guidelines if you will, that will help one make money instead of struggling with constant failures.

It’s kind of like riding a bike.

When you first start out, you don’t know what all the parts are or what the tips and tricks are to staying on and learning how to have fun.

It’s the same way for investing.

Many jump headfirst into it without knowing anything about the market.


This leads to many disappointments due to things like not understanding what they were getting into, or selling too early because of a gain, or too late because of a drop.

Investing has rules, and they help people see positive results.

If you don’t invest with a set of rules in mind, here are some starters to help you out.

It’s a good idea to look at people who have found eminence in the market, so these are a few universally helpful guidelines coming straight from six of history’s most successful investors.

 

Another thing to look at is what kind of investor do you want to be.

The chart below shows a few of the different kinds and what goes into them.

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  1. Dennis Gartman

In 1987, Dennis Gartman started the publication of The Gartman Letter.

This is a commentary centering around global capital markets and is delivered all around the world to brokerage firms, mutual funds, hedge funds, as well as firms with grain and trading.

Gartman also frequently appears on financial networks and is himself an accomplished trader.

Gartman highlights the need for patience during any investment, especially during winning trades.

He says that it’s possible to make large profits from trading and investing even if we are only right 30% of the time.

He warns to keep your losses small and your profits large.

New investors make a slew of mistakes that could be avoided if they simply waited and thought it out before impulsively reacting.

One way to avoid this is by letting winning trades run.

Selling at the first sign of profit often prevents an even bigger profit.

Another way is by working not to let losing trades get away from you.

Investors who are making a profit from the market will tell you it’s okay to lose some money on a trade.

However, it is not okay to lose a lot of money.

As Gartman says, you don’t have to be right 100% of the time, or even a majority.

Learn how to tell the difference between a winning trade that needs to run, and a losing trade that you need to get out of fast.

The winning trades will give a profit that far outshines the losses from the losing trades.

 

  1. Warren Buffett

Warren Buffett is widely considered to be history’s most successful investor.

Though being one of the richest men in the world is an accomplishment in itself, he has also been privy to the financial ear of presidents and world leaders.

When Warren Buffett speaks, it could be said that markets around the world move in response.

Buffett focuses on two points of advice for investors.

When you are evaluating a company, you should look at both the company’s quality and the price.

The quality of the company is a more important of the two factors.

This requires conference calls, confidence in management, and an understanding of balance sheets.

Once you have decided that you are confident in the company itself, then it’s time to look at the price.

If the quality is high, chances are the price won’t be extremely low.

If you buy from the bargain bin of investments, expect to see bargain bin outcomes.

Don’t buy a company just because the price isn’t outrageous.

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  1. Bill Gross

Bill Gross is known for his vast knowledge and authority on portfolio management.

As the co-chief investing officer at PIMCO, he runs one of the largest bond funds in the entire world, the PIMCO Total Return Fund.

A university rule for portfolio management that most young investors have heard before is the rule of diversification.

This essentially means avoiding putting all of your investing capital in one name.

While this is typically a good rule of thumb, it can also diminish your profits if you’re not careful.

Gross challenged you to put 10% or more of your portfolio centering around a stock you find particularly promising.

He tells investors to make their ideas count because good investment ideas do not deserve to fall into meaningless oblivion.

It is important to do exhaustive research and take chances based on what you find.

Don’t be afraid to invest a little more when you feel like you’ve found a real winner.

 

  1. Prince Alwaleed Bin Talal

While his name is not commonly known, Prince Alwaleed Bin Talal is prominent in the investment world.

As founder of the Kingdom Holding Company, Bin Talal has seen success.

However, he is also very familiar with failure due to owning a stake in Citigroup during the Great Recession.

It is okay to trade stocks on a medium or short term basis, but try to focus the majority of your portfolio on long-term holdings.

 

  1. Carl Icahn

Carl Icahn, a modern day corporate and private equity investor, buys bigger stakes in companies and then attempts to get voting rights to increase the value for shareholders.

He has had holdings in Yahoo, Time Warner, and Blockbuster Video.

Icahn is no stranger to making enemies, so it makes sense that his advice is about how investments are not the place to make friends.

He has made his fair share of them in his line of work.

However, his advice should not only correspond with interpersonal relationships. Don’t act upon advice from friends or sketchy Facebook links, no matter how trustworthy they may look.

The only advice you should follow is from trusted sources after your exhaustive research.

While other sources may be trustworthy and verified, they shouldn’t be the sole reason for you committing money.

As shown in the graph below, it is important to account for the risk-reward ratio before making any investment that seems to have certain risk involved.

Determine if it is worth it.

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  1. Carlos Slim

Carlos Slim, another one of the world’s richest men, is the owner of hundred of companies and employer to over 250,000 workers.

His invest philosophy centers around a mindset that the best inventors possess.

Don’t focus on the now.

Invest now for what may happen later.

This is done by studying a company’s momentum and its interactions with competitors.

Always be forward thinking.

Investors should always keep their portfolio anchored with strong companies that have a long record of steady growth.

However, it’s also alright to look for the next big winner.

Slim says that he is convinced that the poverty in Latin America is an opportunity for growth and investment.

 

  1. Jim Rogers

Jim Rogers was a co-founder of the Quantum Fund, as well as the creator of Rogers International Commodities Index.

He is a well-known investor, as well as an author and American business person.

Rogers gives advice to help warn investors of the dangers of reaching bottoms in the investment world.

Long lows that last more than a decade are rare, but they have been known to happen.

But, it’s okay to go against the flow and invest.

You could make a fortune.

However, be prepared, in case it doesn’t pan out, and you lose profit.

Do thorough research before investing and make you sure you feel confident in whoever you decide to invest with.

 

  1. Jim Cramer

While Jim Cramer is not as high profile as some of the other names on this list, but he does happen to be a bestselling author, as well as a former hedge fund manager.

He went to Harvard and has since found success in a myriad of investment opportunities and careers.

He also became a television personality after he began hosting Mad Money on CNBC.

His advice is that while sometimes the market will do something so incredible that it will shock you enough to steal your breath, he warns investors to be aware that failure does happen.

The market is unpredictable at times, and even the most exhaustive research can fall flat in reality.

Be careful when making investments and be aware that it might not turn out how you expect.

There is risk everywhere, especially so in the market.

Be prepared for the guaranteed ups and downs of investment.

Cramer offers advice here on how to pick investments.

 

The Recap

The bottom line here is that you need to do research and have a set of rules before making any investment.

Decide where your limits and boundaries are and stick to them.

Take risks, but be careful when you do.

Don’t risk everything, just enough to make a profit.

Follow the advice from these experts and look up some tips and tricks to staying alive in the market.

Happy investing!

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