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  • Writer's pictureAbdulgafar Asimi

5 Principles and Rules of Investment

Updated: May 14, 2020

There are fundamental investing principles that apply to each of us whether we are seasoned portfolio managers or a novice investor. It never hurts to take time to periodically review these important principles and improve the foundations upon which we make investment decisions.

It’s important to know what kind of investor you are and adhere to the principles of your investing strategies. What kind of investor are you; value, contrarian, growth at a reasonable price, growth, or momentum? If you choose to be a value investor you are at the right place to learn more. I believe investment decisions should be valuation-based. Whichever investing strategies you choose, maintain a consistent approach. In other words, a value investor should not be participated in momentum investing.

RULE NUMBER 1: Never Loose Money

Don't only focus on the return on investments, also focus on the Returns off Investment. You need to determine how save and secure an investment is in like 5 - 10years. Always invest in what your understand and avoid keeping your money begers who only want to grow their capital.

RULE NUMBER 2: Stick to Long Term Value Investment

Short term investing is one of the biggest downfalls of current investing strategies. The truly great investors realize if you buy an investment at a favorable price it may take time for the market to recognize its true value.

Long term investing is one of the most important investing principles because short term trading usually leads to poor long term performance. This is common because many investors let fear and greed cause them to make bad decisions. The long term will take care of itself if you make wise investment decisions

RULE NUMBER 3: Invest like you are buying the Company

Warren Buffett said "it's better to buy a wonderful company at a fair price than a fair company at a wonderful price"

RULE NUMBER 4: Invest in Companies with Competitive Advantage

Invest in businesses that are consistent in operation even if the returns is low. A great business is simple and easy to understand. Invest in business that have great recognition and brand. Invest your money with any company that is forefront within it's industry and locality. A company with competitive advantage can increase price without loosing clients meaning they are leading in their industry and they do not compete base on price but they compete base on value and that's very credible.

RULE NUMBER 5: Keep Cash in Hand

Buffet said " be fearful when other are greedy and be greedy when other are fearful"

Diversify in different asset classes We all know that diversification is important. The problem is, we all want to be diversified as long as we are diversified in the top ten funds in the two hot sectors. Unfortunately, few investors realize that diversification necessarily means that different asset classes will provided dissimilar returns in the short run. At any given time, some sectors are hot and some sectors are not. Instead of wasting your time trying to predict the hot sectors, own all the sectors.

Make sure you always have cash in stock to take advantage of any opportunity

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