Sunday, March 1, 2009

10 Rules for Investment - Part II

Hi folks, sorry to inform you that I would be unable to update my blog as frequent as previous months, as I have plenty of company works to follow-up lately. I hope I can be more efficient in my work while spend some time to update my blog. Well, I just feel great to write a post on weekend.

Anyway, I hope you enjoy the part I of the 10 investment rules just like what Warren Buffer did. And hope they will help you to justify better on your stock pick. So here's the part 2.

Rule $5 - Analyze the situation carefully and find an achievable target, but not those target which hard to achieve.

Buffet did his stock pic very precisely, where those stocks pick were more on long term sales companies. After 20 years later, the company sales are still stable. During 1973 to 1974, when the stock market is corrupted, the giant advertisement company in US has left about US$0.76 per stock. Buffet bought as much as he can, and sold hem after many years. The yearly return for this stock is about 20%. Where else in this world you can steadily get 20% interests per year and for many years? Some more the stock was bought in bulk by Buffet.

Is technical analysis really works? Or it's just show us prediction based on past history?

Rule $4 - Don't worry about stock market and economy outcome, we want to buy a career but not stock.

Nobody can predict the stock and economy outcome in this world, not even David Brain or Buffet. If you only chose to buy a stock under certain economy condition, and you always need to switching frequently, then you will encounter lose in one day.

To buy one stock, you need to comfortable and confident with it, no matter it is unstable for one or two years. If you don't plan to hold a stock for 10 years, then don't hold it for even 10 minutes.

Rule $3 - You don't have to gain back the lose from the same stock

For a novice trader, they will keep invest and in hope the stock will regain the lose when the stock is keep falling. But thing just not happen in the way we anticipated. We need to set an affordable stop loss, and try to invest on other potential stock instead. If we discovered we are suffering from the stock lost, we can choose not to further suffer anymore.

Study the company will make us understand how much it can helps us make money.

Rule $2 - If you have sufficient internal hot tips and given capitals, then you will bankrupt within a year.

By the time you have the news, other people should have already obtained it, and acted on it of course. Buffet always said why he likes to stay in Omaha is, there will be no people provide him internal tips during lunch hour. So, we have to do the fundamental job, perform potential companies analysis and then make a good decision.

Rule $1 - Diversification is only cater for those don't know what they are doing

Buffet will only go for those companies which met his requirements, including potential management/sales, and reasonable price. He willing to spend many years to hold a stock, just like Coca-Cola. He rather concentrate on one stock and once he invested to the company, he will just wait and get his return from there.

Yes. These are the 10 rules that the richest man in the world did. Sounds great and easy, isn't it? Well, practice makes perfect. I believe now is the golden chance to buy low price stock during this recession period.

Good luck, folks.

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