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Below are ten principles
which will provide you with the essential information you will need
when deciding which shares to invest in. Companies which stand out
after applying these rules, should depending on the timing, produce
above average returns.
In addition, by sticking to this maxim the probability of not losing
any money when investing, rises considerably.
1. Focus on following the progress of
individual companies, not the stock market. When buying shares,
make sure you know everything there is to know about the company.
Regular analysis of business reports is key to making an informed
investment.
2. Make sure you can clearly picture
the future of the company. A long-term earnings outlook is
essential to any investment decision. The only reason to invest money
in shares is the expected cash flow.
3. Choose shares in the best
companies. Only consider companies which have proven that they
are excellent in their field of business and have achieved an increase
in profits over a number of years.
4. Stick to what you know.
Those who know their branch and business inside out can avoid false
estimations.
5. Identify the actual value of a
share. According to Benjamin Graham every company has an
intrinsic value. This is calculated by taking into account not only the
book value of a company but also its earning power.
6. Only buy when the price is right.
Even when investing in the best companies, you can end up paying too
much for shares. The long-term return on invested capital is calculated
by looking at the relation between the purchase price and the earnings
trend of the company. If the former is too high, the return can be
slim.
7. Do not feel the need to cover all
your bases. This does not mean abandoning your conservative and
safe approach and throwing caution to the wind, but rather that just a
few investments in companies with excellent prospects will be your path
to success.
8. Hold on to your shares.
Selling your shares should only ever be an option when the basic
estimation of the earnings trend changes, or if an investment that
promises even higher returns presents itself. A higher stock market
price should never be a reason for selling.
9. Avoid additional costs. Try
and avoid making non-essential transactions as this results in paying
extra commission and often taxes. Bank surcharges, management and
consultant fees are all drains on your earning power.
10. Ignore the experts. Trust
your instincts and not the opinions of others- least of all the stock
market.
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