I thought it might be about time for a quick review of focus investing. Here are the tenants and they are linked to articles describing them in more detail:
- Check out this article on the reasons to invest.
- Find ways to save more of your income for emergencies and for investing.
- Make sure to have an emergency fund before you start investing.
- Develop the temperament of a stock investor.
- Markets are efficient as they can be but there are bargains out there.
- Picking several companies to invest in is important, but intentional diversification is not.
- Pick 10-20 great stocks. 10 is better. More than 1 is important to reduce actual risk. Because of diminishing returns, going more than 20 is not all that helpful and likely harmful.
- Pick company stock based on good data, mostly the company’s financial reports and other specific information about the company. Rumors and news stories are not good ways to pick a company.
- Always run an analysis of discounted net present value to arrive at a high price to pay for the stock.
- Your best opportunities could have greater weighting than your other picks.
- Break rules but make sure your eyes are wide open about the risks when you do. For instance, you may choose to buy a stock at a higher price than your discounted net present value.
- Adjust your cash position as you approach the recent highs or lows of the market.
- Make sure to depend on primarily yourself and your analysis of good data for stock choices.
- Sell never unless the fundamentals of the stock change.
I will leave it at that today. Make sure to comment if you have any questions.