All experienced investors follow ground rules which you should know. Here are five precepts that can cause you to be a much better investor.
Rule 1: Magic Compound Increase of Dividends and Interest
Several hundreds can turn and then lacs. Anyone can reap the benefits of compound increase since it is not equated to investing skill, degree of sex, schooling or another motive. It’s the strongest power in wealth building.
Just two elements are required because of this principle. One is when you begin the other and investing is you let gains compound. This creates an exponential effect for gains increase.
Compound increase is just developing riches using dividend (interest) income added in addition to dividend (interest) income repeatedly as time passes. It is like a little dividend snowball rolling down a hill that is long blanketed with dividends.
Rule 2: Do Not Lose Cash
The most easy rule is the most difficult to pull off. Upon this assumption, all great investors develop their portfolios from this view, but the rule isn’t be taken.
All investors lose money sometimes, but the ones that are great, minimize losses following several measures that fall within rule two. The loss percents can cut by investing with a long term obligation. Time permits stocks that are great with returns that are negative to grow back into positive territory.
Keeping a long term investment horizon (Atleast 5 years and not months or a year) will help stave off market losses. Not losing cash applies to stocks, bonds, mutual funds, exchange-traded funds, and other investments. Any stock may become a loser, but history reveals that with dividend increase and share price increase a great stock will reward over time.
Rule 3: Prevent Leverage of Any Kind
Within the investing world, leverage is using borrowed capital (cash) to purchase stocks with the aim of paying the funds plus fees back if the investment pays off. This can be purchasing on margin.
I have never found any reason when purchasing shares to use leverage. Keeping investment prices low adds to gains with time. Leverage adds stock purchases and price because the borrowed funds include interest.
Lots of investors use leverage and best of luck to them. It is not for you. Many time traders mail us asking who have 10000-15000 capital and what should they trade in whether NSE or MCX. We only urge them to spend this capital on their loved once.
Rule 4: Work Within Your Group of Competence
Find that within a group of competence we spend much of our lives as individuals. It is naturally part of our nature. Professions and buddies, clubs, groups generally fall within our comfort zone.
Investments aren’t any distinct. Invest in businesses you understand because you’re able to get how they make money, and what they do they do it. Warren Buffett once said that, “Among the things we strive quite difficult to do at Berkshire, will be to remain within what I call our group of competence.”
Rule 5: Purchase Great Companies At Great Prices
You become among the owners, when you purchase stock in a publicly listed company. Purchasing an excellent company at an excellent cost reduces loss of cash and improves compound increase potential. Recall, owning a stock is owing the company.
Shares in businesses that are great, drop and rise in cost – that is ensured. But market history demonstrates stock in businesses that are great travels along a growing continuum, which over time eliminates share price losses. Long term investing in businesses that are great reduces downside risk.
Follow your personal wealth to instantly grow. Set of compound increase in your corner, reduce risk of loss, and select just firms that are great to possess.
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