Very slowly, I am learning about investment and investing. I do believe that investing requires learning: I am firmly in the ‘value’ school. From the various books I have read and people to whom I have spoken, this is the wisdom I have distilled to date, with sources and my subsequent embellishments.
- Never invest what you can’t afford to lose. From Caleb Loom, my grandfather. You need an income, and you need shelter. Don’t do anything that jeopardises this. Your investment baseline should not be zero, nor should you consider all your assets as part of your portfolio.
- Invest on the basis of fundamental value. From Benjamin Graham. Every system is phoney, every day-trader a gambler. Patience is not only a virtue, but a competitive advantage.
- Diversification reduces your potential for large losses, but also your potential for large gains. From Warren Buffett (who put it more succinctly, “When your advisor tells you to diversify, he’s telling you he doesn’t know what he’s talking about”). Note that (as John Kay would argue) diversification is the best way to ensure modest growth – but by prioritising the need for diversifying your portfolio, you are adding another reason to buy a stock: for the sake of diversity. This is one reason too many. The only reason you should have is because it’s a good stock.
- Hammer down your investment costs. From John Kay. Fees and charges eat your return. Buy and sell smartly – take advantage of deals, buy in bulk. Try for a maximum 1% annual overhead.
I hope to learn much, much more, but this isn’t a bad start.