32 Investment Rules and Strategies to Make You a Better Investor

by KenFaulkenberry

in Value

Investment Rules and Strategies
Investment Rules and Strategies

Investment Rules and Strategies

These investment rules and strategies are proven ideas to make you a better value investor and improve investment performance:

  1. Patience is a virtue; develop and cultivate it in your investment management. Patience is a biblical principle that, if applied to investing, will greatly reduce your investment mistakes and improve your investment returns.
  2. Only invest when the odds are heavily in your favor. (Patience)
  3. Invest like an owner. Owners look at things differently. Most people care more about something they own versus something they rent. When you buy an investment think like a long term owner, not a renter.
  4. Develop a plan or roadmap of how you are going to achieve your goals.
  5. Implement risk control strategies with diversification rules and don’t deviate from your parameters.
  6. Understand the types of investment risk and try to avoid and mitigate them as much as you possibly can.
  7. Concentrate on not losing money. It’s more important to not lose money, than make money. If you are preoccupied with making money you are apt to make bad decisions.
  8. Know what kind of investor you are and the stock investing strategies that best fit your beliefs and personality.
  9. Never invest money you might need because you will usually need it when you have to sell your investment at a low price.
  10. There is a difference between saving, investing, and gambling. Know the difference and treat each one accordingly.
  11. Don’t listen to financial prognosticators and forecasters. Understanding probability theory means focusing on the long term.
  12. Only invest in what you understand. Good research leads to good investment decisions. If you don’t understand how and why a company makes money, don’t make the investment.
  13. Minimize asset correlations by dividing assets among different asset categories. This is called asset allocation.
  14. Buy the best companies. You have a choice. No one is forcing you to purchase a stock. Companies with sustainable competitive advantages can dominate their industries. (Patience)
  15. Look for companies that can survive, and even thrive, in bad economic times. Companies that sell necessities have an advantage.
  16. Net Cash Flow is the single most important company statistic because it tells you how much cash a company is generating from operations. Look for companies with strong predictable cash flows.
  17. Invest in companies with great management. Management controls the cash flow, or where the company’s capital is allocated.
  18. Understand Enterprise Value because it represents the total value of a company’s equity shares. Essentially, this is what you are paying when you buy your fractional share of ownership (stock).
  19. Value and compare company shares using Return on Enterprise Value (ROEV) is a valuable stock valuation calculation to value and compare company shares.
  20. Compare companies you’re considering for purchase to the best stocks in your portfolio. If they don’t measure up; don’t buy them. If the price is too high; wait. (Patience)
  21. Only buy stocks that are priced with a Margin of Safety. Refuse to overpay. Many times that means passing on great companies, or at least waiting for a better value. (Patience)
  22. Never panic; but buy when others are fearful. This is when you will get the best price. When others panic, use some of your cash reserves to buy quality companies.
  23. Don’t time the market; you can’t pick the bottom or the top consistently. Learn how to make investment decisions based on value. Buy when values are good, and sell when values are high. This is something you learn over time.
  24. Buy on corrections. Even raging bull markets have corrections which should be looked at as opportunities to buy something you wanted at a better price.
  25. Sell when others are greedy. When the market is moving higher day after day, week after week; give them some of your stock. Your charity (;-)) will usually be rewarded. No one ever goes broke taking a profit.
  26. Avoid over diversification. Don’t own too many small positions or so many stocks that you become an index fund. This assures average performance and keeps you from owning only the very best companies.
  27. Focus your portfolio on a few industries with strategic advantages. Owning every industry is over diversification and keeps you from owning the best opportunities.
  28. Focus on the medium to long term and de-emphasize the short-term. Where will your investments be 3 – 5 years from now?
  29. Expect market volatility, but avoid portfolio volatility. Be prepared financially (cash reserves) and psychologically to buy more of the quality stocks in your portfolio when stock prices take a hit. Be prepared to sell your more expensive valuations when markets are frothy.
  30. After all these cautionary rules and strategies are taken to heart, realize there is NEVER a perfect time to invest. Uncertainty is a part of investing and that is why it’s important to invest with the odds in your favor.
  31. Cash is an important asset category to protect your portfolio in bear markets, and provide capital to buy assets when they are at bargain values. Asset correlation is usually highest in the worst selloff.
  32. Work hard and do your homework. If you need help hire wise experts to help you.

These investment rules and strategies will make you a better value investor. You will reduce your number of mistakes and avoid many of the pitfalls that wreck investment portfolios. By concentrating on taking prudent risks that favor positive returns you boost your long term investment returns.

Written by KenFaulkenberry

KenFaulkenberry

AAAMP Blog by Ken Faulkenberry
Ken Faulkenberry earned an MBA from the University of Southern California (USC) Marshall School of Business with an emphasis in investments. Ken has 25 years of investment experience and is dedicated to helping people with self-directed investment management through the Arbor Investment Planner. His asset allocation strategies have an outstanding performance record.
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{ 4 comments }

Shailesh Kumar

Great summation of the most important principles. None of these principles will work if you are scared of making mistakes. When you first start investing, expect to make mistakes. When mistakes happen, recognize them, learn what could be done to prevent similar mistakes, and then move on. Using these principles will help you avoid the worst of the mistakes but real expertise and success comes from staying in the game long enough.

KenFaulkenberry

Excellent advice Shailesh. Keeping your mistakes small enough to stay in the game is a crucial part of risk management.

Norman Dolbow

Where do i find a GOOD inflation guage? I don’t believe the fed/gov.
Thanks, Norm

KenFaulkenberry

That is a good question Norman. I don’t know what to tell you….I don’t trust the government statistics either!

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