7 Investing Rules That 90% Don’t Follow
Make sure you’re one of the 10% that does follow these rules
This article is not financial advice. It’s my opinion and is given for educational and recreational purposes only. Do your own research. You’re responsible for all the decisions that you make.
Investing is relatively easy over the long term, but most people still get it wrong. Here are 7 rules that I follow. They are rules that most people can’t follow even if they know what the rules are.
#1 — Base decisions on facts, not your emotions
Whatever you’re planning to invest in, you should be basing your decision on facts, not emotions. The idea with investing is to buy low and sell high. It’s a simple idea. It’s harder in practice than in theory, though.
When the stock market is at all-time highs, many people suffer from FOMO (fear of missing out). This leads them to invest using their emotions. That’s a terrible way to invest.
It’s the same with crypto, property, and other assets.
It’s not just buying at the wrong time, though. People also get fearful during market downturns. They then end up selling because of fear. They ignore the facts.
#2 — Don’t put all your eggs in one basket
Right now is a good time to mention this rule. I’m sure you’ve all heard about it multiple times. I’m sure everyone must have heard of this rule. Yet it’s a rule that many can’t follow.
Last month, the UST stablecoin collapsed. Many people lost substantial amounts of money. There were countless stories of people that were suicidal because they’d invested their life savings in UST.
This is something that you should never, ever do.
Despite the above catastrophe, a similar situation is unfolding with the crypto exchange Celsius. They’ve suspended withdrawals. Many are worried that they will lose all the money they have on the platform.
Just like with UST, there are stories of suicidal people that have all their money on Celsius.
Despite what happened with UST, people just ignored the risk.
Let me repeat what I said above.
You should never, ever put all your eggs in one basket.
#3 — Don’t sell just because the price fluctuates
If you bought an asset as a long-term hold, don’t worry about price fluctuations. Don’t sell a great asset just because the price dropped. Decide whether to sell based on the facts.
Amazon stock dropped 95% at a time when the fundamentals were improving. People were selling based on the price, not on the fundamentals. If you’d held on instead of selling, you would likely have become rich.
#4 — Buy great assets, not low prices
When deciding what to buy, base your decision on the quality of the asset, not the price. A stock trading at $1,000 may be much better value than one trading at $1.
Don’t make the mistake of thinking that just because the price is $1 that it’s a bargain. That’s usually not the case. The price of the stock doesn’t have a direct relationship to the value of the company.
#5 — Only buy what you understand
This is a favorite saying of Warren Buffet. He famously didn’t buy tech stocks because he didn’t understand them. He stuck to what he knows and became one of the richest men in the world.
I see people make this mistake with crypto. They will put substantial amounts of money into some meme coin or other just because they heard it being mentioned. They don’t have any idea what the coin is about.
The recent collapse of the UST stablecoin is a good illustration of this. People heard about the 20% yield, so bought based on that. They didn’t understand the underlying risks.
#6 — Grab the opportunity with both hands
We don’t get many really good opportunities in life. Maybe only a maximum of 10 for most people. That means that when comes along, you should grab it with both hands.
I still regret the time I got offered a great condo at a discount. In the few days I took to think about it, it was sold to someone else. It was obviously a great opportunity, so I should have just bought it right away.
I see so many other people with similar regrets about opportunities they missed.
This also applies to other areas of life. Don’t let a great potential life partner get away. Don’t dismiss a great travel opportunity. Don’t miss out on a great job.
#7 — Buy assets below their fair worth
This is probably the best way to make money. During recessions and other tough times, there are usually plenty of bargains to be had.
Stocks, crypto, property, and other assets often all sell below fair value. This is the time to scoop them up. This is how some people become seriously wealthy.
Don’t buy at the top. Have some patience. Wait until the bargains appear.
