Rules for investing

As of June 17, 2008
1    Notice: how do you FEEL about buying this stock?  There’s a fine line between investing and gambling…when you’re investment decisions are driven by fear or greed, you’re gambling.  Better than 95% of investments are based on emotion…if you can notice yours and stop reacting, you have an advantage     Action: Write out in detail reasons for buying or selling a particular company…notice if emotions are driving the decision

2    Less is more.    There is so much noise around markets and it really is getting louder..wsj, blogs, twitter, cnbc..people become addicted to these, and even worse their judgment is clouded.  More noise (information) DOES NOT = better investing.  Keep things simple.    Don’t ever buy or sell a stock because of something you “heard. “

Action: Before each sale, you must write down why you are selling…if it can be considered “noise” driven, then it is not a good reason.

3    keep it simple.  You don’t have all the answers, you don’t know who the next big winners are.  So follow the trends, let the trend guide your decisions. Action: Let the new highs list reveal potential winners.  Only buy those who are moving higher on higher volume. THEN re-evaluate the company’s long term prospects.

4    journal, experiment, notice, adapt    I don’t know what the “winning” formula is, so it will take lots of trial and error to hone in on something that works for me   Action: record everything (Buys, sells, almost buys, etc), notice what seems to work and what doesn’t…adapt.  Journal it all here.

5    Stay within yourself:    Don’t chase other’s ideas, rules, opportunities.  This is like a reminder to rule 1…don’t blindly act on emotion.  Act on rules so you can test and improve….And stay within yourself.  You like ideas, you like envisioning the future, you are good at finding hidden information…USE THESE SKILLS to influence your investment decisions.  Don’t rely on others OR try to be others

6.  Think like fundamentalist / trade like a technician:   There are all sorts of signals one can follow (volume, price, etc) but when investing you should utilize emotional indicators to find stocks (new highs, volume, etc) and ability to analyze long terms prospects to make a decision on whether or not to buy    when describing reason for a buy ask yourself: Is this a business I may want to own 5, 10, 15 years from now?  Is this part of a uptrend?

8    Preserve capital.    You will make mistakes, but the difference between making money and losing it all is knowing when to exit a position    evaluate each position briefly daily. KNOW your exit conditions and stick to them, notice if you are emotionally attached AND ALWAYS HAVE A STOP IN PLACE.
NOTE: NEVER RE-INVEST IN A LOSS (ie JMBA)

9. Never buy or sell during the day:  My emotions can’t be trusted when I’m able to open Scottrade throughout the day.  All buy / sell orders must be placed when the market is closed.  Trust your stops to protect your downside.

10. Buy companies that live in the realm of opptomistic uknowns.  All of the best momentum stocks are driven by the seemingly infinite potential upside.  Aapl’s continued fantastic numbers and the hype of the iPhone has driven the stock higher because no one really knows how much $$ they can make.  JRCC exploded because their coal inventory is unhedged and the price of coal has skyrocketed.  It’s really unclear of how high it will go, but it seems like it could go on forever..so JRCC has skyrocketed.  Look at the industry of each company, look for this before buying.