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7 Timeless Principles of Investing
Author: Barry R. James

Overview

In 7 Timeless Principles of Investing, you’ll learn a simple guiding philosophy that can help people avoid investment pitfalls and raise their chances of financial success.

Introduction: Investing Isn't Gambling

Some people view the stock market as a casino. Others think of gambling as a form of investing. Neither is true, so let's dispel the myths by highlighting the three major differences between investing and gambling.

The First Principle: Know Yourself

"What does knowing myself have to do with investing?" In a word, everything. At James Investment Research, Inc., we've learned that truly successful investors achieve their goals based on their temperament, even if it means they don't make the highest possible returns. They match their investments to their comfort levels so they can stay with their choices for the long run, putting the odds of success in their favor.

The Second Principle: Avoid Losing Money

Warren Buffett, one of the world's wealthiest people, has two oft-quoted rules for investing. The first is the opening quote of this chapter, "Never lose money." The second is: "Never forget rule number one."

The Third Principle: It's Not What You Own - It's When

The goal of winning drove every decision legendary coach Vince Lombardi made for his team. But for investors, the goal is good timing.

The Fourth Principle: Hang On to Winners, Sell Losers

How do you know which stock to sell? First, keep in mind that your remaining stocks should be the ones with the best potential for advancing. Second, check with your financial or tax adviser about any tax consequences your sell decision could have. After that your choice is simple but not necessarily easy: whether to sell your biggest losers.

The Fifth Principle: Avoid Following the Crowd

There's a concept in investing called a mania, and it's got a lot in common with its psychological roots. It's what happens when a large number of investors' emotions cloud good, solid reason.

The Sixth Principle: Diversify, Diversify, Diversify

No matter how carefully you chose an investment, disaster can strike. Sometimes it is literally, as in the case of major hurricanes, droughts or earthquakes. Sometimes it is political in nature. Markets can be rocked by coups, government incentives or austere laws and regulations. When you diversify, you reduce your exposure to such risks.

The Seventh Principle: Let Time Work for You

The final principle sums up all the rest. Having made smart, diversified investments that fit your temperament, it's time to sit back and let your decisions play out over time.

How to Apply the 7 Principles

Complete five steps that will lead you to an investing style that matches your temperament and investing goals.

In Conclusion

As I close, I ask you to consider one last investing principle. It concerns what I think it is the greatest investment opportunity of all – eternity.