25 Tried and Tested Rules for Investors

July 6, 2015

I have been an investor for over 30 years. Over that time I have learned a lot. Many of the lessons were expensive. As time went on I condensed my expensive experiences into rules that I use every day as a full-time investor. Today I would like to share some of those rules with you. 

Each of these rules could be the subject of an entire article (and in the future, many will be). But today I just want to share the list of rules. Do with them as you will. Tape them on the wall next to your computer. Use a few as jumping-off points for group discussions in your Investor Club. Write an article based on one or more rules and submit it to us for publication! Most important, I suggest that you follow them. I've already paid for them. There's no sense in you spending your money to learn them the hard way...

1) If you are a new investor, PAPER TRADE before you put your hard-earned money into the market.

2) If you are an experienced investor, PAPER TRADE any new system before you put your hard-earned money into it. Don't let pride cost you money - the fact that you've been successful with other systems is no guarantee that you'll duplicate that success with a new one.

3) Don't invest in anything you don't understand.

4) Determine your "Trading Personality." It is essential to know whether you are a "Trader" or an "Investor" by inclination.

5) Be aware that your "Trading Personality" may change with time and experience; according to your work schedule; or with changes in your financial circumstances.

6) "Buy and Hold" only works in bull markets (and even in bull markets, trading works better).

7) Most mutual funds under-perform market benchmarks. If you feel you must invest in a mutual fund, consider a good index fund. The fund costs are lower, and you'll probably make better returns.

8) The trend is your friend. Only salmon swim upstream.

9) Forget "Buy Low & Sell High." Trying to catch the bottom on a stock or index is like trying to catch a falling knife.

10) It is even harder to sell at the top. Once stocks turn, they usually go down twice as fast as they went up. Don't be greedy; sell before you think the top is near. (See next rule.)

11) Don't sell a position as soon as it shows a profit. Wait until it shows signs of losing momentum, and then sell. Your average profit will be much greater.

12) Buy high and sell higher. The only way to be reasonably sure you have seen the bottom is to wait until a stock has moved up 10% to 20%. It's much safer to buy then, rather than buying a stock on its way down in hopes of catching the bottom.

13) There's a reason why cheap stocks are cheap.

14) Cheap stocks don't double in price any faster than higher-priced stocks.

15) Most stocks that fall below $5 will never be $20 again.

16) Never fall in love with a stock - it sure won't love you back.

17) Always use protective stops when buying stocks, options or futures. Only a fool flies on the trapeze without a safety net.

18) Never "average down." If a position isn't working get out with a small loss; it's stupid to throw good money after bad.

19) Don't quit your day job until you're winning over 80% of the time.

20) Never put more than 5% of your investment capital in any position.

21) Never commit all our money to the market, no matter how well things are going. If the market turns against you, you need to have money available to begin again.

22) Don't sell when a stock nears or hits a new high. Investors often fear being in uncharted territory, but that's often the best place to be. Stocks often "take off" after hitting new highs.

23) Base your investment decisions on the quality of the investment, not on tax implications.

24) Don't keep losing money trying to prove you were right. Nobody cares.

25) NO ONE - no broker, no mutual fund manager, no 401K executive - cares about your money as much as you do. Get the right TOOLS and LEARN how to manage your own money.
Copyright ©2015

Dr. Tom Barrett is a pastor, teacher, author, conference keynote speaker, professor, certified executive coach, and marketplace minister. His teaching and coaching have blessed both church and business leaders. He has been ordained for over 40 years, and has pastored in seven churches over that time. Today he “pastors pastors” as he oversees ordained and licensed ministers in Florida for his ministerial fellowship.

He has written thousands of articles that have been republished in national newspapers and on hundreds of websites, and is a frequent guest on radio and television shows. His weekly Conservative Truth article (which is read by 250,000) offers a unique viewpoint on social, moral and political issues from a Biblical worldview. This has resulted in invitations to speak internationally at churches, conferences, Money Shows, universities, and on TV (including the 700 Club).

“Dr. Tom,” as his readers and followers affectionately refer to him, has a passion for teaching, as you can see from his ministry website (www.ChristianFinancialConcepts.com); his patriotic site (www.ConservativeTruth.org); and his business site (www.GoldenArtTreasures.com). Tom's friend Dr. Lance Wallnau wrote of him, "Tom Barrett is a Renaissance man with a passion for subject matter ranging from finance to theology and American history."
Visit Dr. Tom Barrett's website at www.DrTom.TV
See more from Dr. Tom Barrett at www.ConservativeTruth.org