Here are 10 lessons from a portfolio manager that averaged 29% annual return from 1977 to 1990
1. Everyone has a unique set of knowledge related to their field of work or interest. Your investor’s edge is not something you get from stock analysts and experts. It’s something you already have. You can outperform the experts if you use your edge by investing in companies or industries you already understand.
2. Avoid hot stocks in hot industries. Great companies in cold, nongrowth industries are consistent big winners.
3. Don’t look at the stock price. Look at the actual business. Find out what it’s doing. The more you understand it the better.
4. There is often no correlation between the success of a company’s business operations and its stock performance over a few months or even a few years. But in the long term, there is a 100 percent correlation between the two. This disparity is the key to making money; it pays to be patient, and to own successful companies.
5. You have to know what you own, and why you own it. “This baby is a cinch to go up!” doesn’t count.
6. Owning stocks is like having children. Don’t get involved with more than you can handle. The part-time stock picker probably has time to follow 8 to 12 companies and to buy and sell shares as conditions warrant. There don’t have to be more than 5 companies in a portfolio at any one time.
7. Sometimes it’s okay to wait on the sidelines. If you can’t find any companies that you think are attractive, put your money in a savings account until you discover some.
8. Over time the stock market has come to be dominated by a herd of professional investors. Contrary to popular belief, this makes it easier for the amateur investor. You can beat the market by ignoring the herd.
9. With small companies, you’re better off to wait until they turn a profit before you invest. High growth stocks with no earnings have a lot of potential, but they can also not go anywhere.
10. If you’re thinking about investing in a troubled industry, buy the companies with staying power. Also, wait for the industry to show signs of revival. Buggy whips and radio tubes were troubled industries that never came back.
Random Useless Fact: