Today, I wanted to write something different. It’s like a exercise in writing fast as I tried to pull out of my brain 100 investment lessons you can read, understand and use within the next 5 minutes. So grab your coffee mug, take a sip and let’s start!
*Note, the 100 investment lessons are not in any particular order, they were simply pulled out of my brain in this order.
100 Investment Lessons
1. Never speculate by putting all your money in one stock.
2. Dividend investing is fun since you end-up receiving money monthly.
3. Maximize your tax sheltered account contribution before doing anything else.
4. Maximize any employer sponsored retirement account before you maximize your own tax sheltered accounts! Free money is free money!
5. Never start your stock research with high yield dividend stocks.
6. Each year, there is a reason for you to cash out your investments and wait on the sidelines.
7. Most years on the market are positive (77% in the past 43 years were positive).
8. Investing in penny stocks is like gambling (note to self: I’m not a gambler).
9. Asset allocation is more important than single stock picks.
10. Never pick a stock from a newspaper.
11. Never pick a stock from a friend’s hot information.
12. Never pick a stock from a blog… wait…. But still do your research!
13. Dividend growth delivers you a double digit yielding portfolio.
14. Never expect to hit a homerun.
15. When you invest money, be prepared to lose it.
16. Sitting on cash is better than rushing to make a bad trade.
17. If you are going to sit on cash, put it in an index fund/ETF in the meantime.
18. Calculate your own dividend payout ratio.
19. If a stock is too cheap and seems too perfect, read the financial statements twice.
20. Market timing is overrated.
21. Asset allocation will generate most of your returns.
22. Try not focusing on just 1 or 2 industries , your portfolio will be too concentrated and therefore risky.
23. Mutual funds are darn expensive, buy them with extreme caution.
24. For a more diversified approach, ETFs or index funds are more effective.
25. Your risk tolerance stops when you think about your portfolio while you eat, dream and have sex 😉
26. Once you purchase a stock, keep following it quarterly at the very least.
27. Make sure you have built your own investing rules before trading.
28. There is nothing sexy about the “buy & hold” strategy, but it works.
29. If you want to speculate, try the casino.
30. Once you have maximized your tax sheltered account, consider tax implication on your trades.
31. Sell losing stocks towards the end of the year to offset any capital gain you may have.
32. Consider the ex-dividend date prior to buying a dividend stock.
33. Cash flow is king.
34. Dividend stocks should not really be considered as fixed income.
35. Sell a stock following a dividend cut, don’t wait.
36. Systematic investments are the best way to grow your savings and average the market.
37. DRIPs are good when you have built your portfolio, not while you are building it.
38. There are different taxation rules on foreign stocks, make sure you understand them before trading.
39. The choice of a low trading cost online broker will help you save thousands of dollars over time.
40. Always buy companies that you can tell where they will be at in 10 years (stable business model).
41. Limit to a maximum of 10% to make “bets” in your portfolio.
42. Be careful about 5 year data, check out the trends over the same period.
43. If you only have 2 minutes to look at a stock; check the 5 year EPS, dividend payouts and current P/E ratio.
44. Sell in May and Go Away is only a good tag line.
45. Rebalance your portfolio every 6 months.
46. Set investing goals annually and review them.
47. Track your investment returns. Without them, you are not an investor.
48. Read as many sources of financial information as possible, this helps you recognize the difference between good and poor quality information.
49. Never trust your brother-in-law.
50. When everybody tells you to buy, it’s because they want to sell.
51. 95% of mutual funds don’t beat their index reference on a 5 year period.
52. Stock splits double your holdings but don’t pay more dividends.
53. Compounding interest is more powerful than the power of gravity.
54. Make sure to track your dividend payments and use your cash flow for something.
55. Investing more than 10% of your portfolio in 1 stock is risky.
56. Investing in a good sector increases your chances of making money even if you don’t pick the best stock in this industry.
57. When bonds don’t cover the inflation, ignore them.
58. GICs are not flexible enough to fit into my portfolio.
59. Keep a “watch list” so you can trigger a trade quickly when you have additional money to invest.
60. Leverage, with caution, is a powerful investing tool. I’ve used it many times.
61. There are new financial products every year; it doesn’t mean they are good for you.
62. Ask how your financial advisor is compensated for the advice he gives you, it will tell you a lot about his trustworthiness.
63. Don’t look at your portfolio every day, it will give you headaches for nothing.
64. Inflation is the first enemy you need to beat.
65. Greed is the second.
66. The only reason to sell a stock is when it doesn’t fit your minimum investment requirements.
67. Stock valuation methods are all based on the future projection of cash flow, it’s up to you to guess if it’s accurate or not!
68. Don’t think you are smarter than the market.
69. Gold is not an investment; it barely covers inflation over the long haul and simply serves speculators over the short term.
70. Don’t invest according to your age (100-your age formula), your asset allocation needs to be based on your risk tolerance and financial situation, not your age.
71. Excel is a powerful tool to track your stocks and investment returns.
72. The minimum requirement to start investing is $25 per month.
73. Consider reinvesting your income tax return after contributing to a retirement account, powerful strategy.
74. Once you sell a stock, never look back. Believe you made the right decision.
75. It’s nobody else’s fault but yours, regardless if you are making money or not!
76. Sophisticated investment products are not necessarily better.
77. If you can’t understand a business model, don’t buy the stock.
78. Keeping cash aside is useful for buying opportunities.
79. Invest your money when there is blood on Wall Street.
80. If you make a lot of money trading, start becoming more careful about your trade. Cockiness is risky.
81. If a stock was priced at $30 and drops later on at $20, it doesn’t mean it can/will go back to its “original value” of $30.
82. Don’t play the market; it goes up and down without reasons.
83. Never trust your gut on a trade, trust the numbers.
84. Don’t expect to make money the day after your buy a stock; it can take months before you see a positive return.
85. Don’t only consider the company’s potential; consider its major weaknesses as well.
86. When the market is up, don’t think you can take on additional risk, that is Greed talking.
87. Your investment horizon is very important. There is no point in taking risk when you are 18 months away from withdrawing your money.
88. Great companies can be overvalued too.
89. Don’t buy a stock with a P/E ratio over 20 without a really good reason.
90. Dividend yield is important, dividend growth is crucial.
91. Don’t try to make up for a previous loss with your next trade, your portfolio as a whole will eventually make it up for you.
92. The perfect moment to invest money is always today.
93. If you don’t want to spend hours managing your portfolio, a financial advisor is NOT a stupid expense.
94. Cross referencing metrics (such as dividend growth vs EPS) is a powerful tool to analyze a stock.
95. Keep in mind that financial statements are written by the company and that their goal is to make their business attractive.
96. Keep in mind that the media’s job is to sell copies and garner attention, not to deliver the best information about the market.
97. If you hesitate between two great stocks, buy both of them with smaller positions.
98. If you can educate your children about the stock market before they reach adulthood, you will make them rich.
99. Start saving in your 20s, you’ll retire happy.
100. Never give up on your investment. The market always goes back up
“37. DRIPs are good when you have built your portfolio, not while you are building it.”
I don’t agree with this.
Can you explain why you think this?
Hello aB,
When you start your portfolio, chances are that you will have very limited amount of stocks. Increasing your holding through DRIPs means that you increase your portfolio risk within those stocks instead of spreading it by adding new companies.
What do you think? does it make more sense?
Hi Mike,
Ok, I do see where you are coming from. From the diversifying/risk perspective I agree.
The part that made me not agree was, with DRIP/SPP, I can increase holdings without any fees. This is of course, specific to building a portfolio with small amounts.
101. Don’t base all assumptions on purchase price.
People buy a stock at $X and start veiwing that as the starting point for all future assumptions. When they see a 50% return they get trigger happy thinking everyone else is going to sell. Not everyone else bought exactly at the same time.
Everyone’s entry point is different into a stock holding and they all view returns differently as a result. Your position is unique.
102. The moment after you make a purchase, base all evaluations on equity not share price. Share price is based on what non share holders are willing to pay. Not what share holders are worth.
When you start your portfolio, chances are that you will have very limited amount of stocks. Increasing your holding through DRIPs means that you increase your portfolio risk within those stocks instead of spreading it by adding new companies.
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