1.) Know What You Own – Most people don’t really know the reasons why they own a stock – you should. Ed’s Note: Similar to Ben Graham and Warren Buffet’s Businesslike Investing in your Circle of Competence.
2.) It is Futile to Predict the Economy, Interest Rates and the Stock Market (So Don’t Waste Time Trying) – “If You Spend 13 minutes per year trying to predict the economy, you have wasted 10 minutes” Focus on the “facts” now at hand rather than predictions about the future.
3.) You Have Plenty of Time – to identify and recognize exceptional companies. If you bought WalMart AFTER it rose 10x in its first 10 years, you got another 60x return over the next 30 years. Bottom line: Don’t be in a rush – look at plenty of stocks, but be patient. Note: Buffett’s “Wait for the Perfect Pitch”
4.) Avoid Long Shots – his record was ZERO out of 25 investing in companies with no revenues but a “bright future” to sell. His advice if you run across a company that falls into this category but still excites you – do nothing and write down the name. Look at it again in 6 to 12 months and see if you still think it is good. If it is one of the good ones and went from 5 to 15 while you waited, per point #3 above, you probably still have plenty of time. Note: Following this rule could keep you out of trouble. Benjamin Graham and Warren Buffett talked about avoiding Speculations and focusing on Investments instead.
5.) Good Management is Very Important and Buy Great Businesses – good management is very important – maybe even the most important consideration. It may also be the most difficult item on this list to get right. His advice: look for good companies because a good management in a bad business will probably fail. “Buy a business any fool can manage because eventually one will” Buffett has also observed that when a good management meets a bad business, it is the reputation of the business that generally prevails.
6.) Be Flexible – lots of unexpected things happen, some good and some bad. Many of his best nvestments happened for the “wrong” reasons, i.e. his original thesis was off, but the investment still worked out. Sometimes he was absolutely right about the growth but the investment was still lousy and he did not make any money. So be flexible and humble.
7.) Knowing When to Sell is Hard – before you make a purchase, you should be able to explain why you are buying/own it in terms that an 11 year old could understand – three sentences at most. Remember this reason and sell the holding when the reason no longer continues to hold. Investing well does not take a genius – only need 5th grade math – so math has nothing to do with being a great investor.
8.) There is Always Something to Worry About – and this makes things interesting. The 1950s were one of the best decades to own stocks, but from a geopolitical basis everyone was scared of nuclear war. In the early 1990s, everyone was scared about the Japanese taking over the world and beating America. Not coincidentally, more all-time worst market days occur on Mondays because people have the whole weekend to WORRY. His advice is to forget about all the global bad stuff because the key to good investing is not the brain/intellect, its having the stomach.