Fundamental rules in investing
By: Francisco Colayco
The First Rule in Investing. For the greatest investors of all time, Warren Buffet, the first rule in successful investing is: Avoid losing. The second rule is: Do not lose. And the third rule is: Go back to rule number 1.
But how do you make sure you do not lose?
Investments should not be taken lightly. There is the potential to win or lose in every investment. You need to study each opportunity carefully and craft a strategy on how to increase your chances of success and avoid losing. You worked hard to earn your money, you must work even harder to keep it. Do not be tempted by instant wealth. Some investments are obviously bound to lose and yet because of the promises of instant wealth, you are tempted to rush into it. Donald Trump quite appropriately cautions the investor when he said, “Sometimes, your best investments are the ones you do not make.”
If you lose one peso, you will need to earn two pesos just to get back to where you started. This seems so basic and yet most of us fail to consider it when we get so excited about making money. It can hurt us a lot particularly when we put too much of our “investment eggs” in one basket.
Stay with the winners
Investing is not like betting on a horse race. You do not have to pick the number one winner. What you need to do is to simply know who the winners are and stay with them. Choose the “horses” that consistently finish the race among the Top 5 if there are fifteen or the Top 7 if there are twenty-one players in an investment sector. When choosing where to put you money, it is important that you get good information or advice about the track record of your investment options.
Expect to lose at some time or another. This is a universal law. You cannot succeed without failing. Just make sure you are prepared with a set loss limit. If you plan well, that loss is only temporary and you can recover quickly or at worst, over a reasonable amount of time. Properly studied, mistakes can be turned into moneymaking lessons. Otherwise they will remain as mistakes that can only result in total losses.
Set time-bound personal goals
Investing, first of all, is a long-term proposition. It is like taking a journey where you, as the traveler, know exactly where you want to go. Your destination is clear and you know where you are starting from.
It is easy to get into an investment. It is not so easy to know when to get out, unless you have a specified money goal, a clear timetable and defined purpose for your targeted amount. Investing, by necessity, is a dynamic activity requiring regular review and evaluation. Economic conditions, government policies and even political and social environments change—as will the strategic considerations on the viability of investments. When these changes so require, be objective and have the fortitude to be bold and even radical, if necessary, to ensure success as you take corrective action.
Preparing for your options
Before making any investment, you must make your Personal Financial Plan. This plan starts with making your Personal Statement of Assets and Liabilities (SAL) and Personal Income and Expenses Statement (PIES). Your SAL tells you how much you are worth. This is your starting point for your journey towards wealth accumulation. Your PIES starts you with your projections of how much cash flow you need to live the lifestyle that you choose. But more importantly, it tells you how much money you can set aside for savings and regular investing.
Making your Personal Financial Plan needs some careful study and analysis. Our Colayco Foundation Team can always help you through out websites, our publications and seminars/workshops.