Six rules from world-class investors

Making money through investment involves a strategy based on a set of rules.

Sun, Nov 06, 2011
AsiaOne

Billionaires didn't become billionaires overnight.

For those who became rich by investing, Forbes.com says most would agree that "making money in the market comes with a steadfast strategy that is built around a set of rules".

In a recent article in Forbes, they found six world class investors who shared their investing rules.

Dennis Gartman
Dennis Gartman, who publishes The Gartman Letter - a daily commentary of global capital markets delivered to hedge funds, brokerage firms, mutual funds, and grain and trading firms around the world every morning - says: "Be patient with winning trades; be enormously impatient with losing trades. Remember it is quite possible to make large sums trading/investing if we are 'right' only 30% of the time, as long as our losses are small and our profits are large."

So, don't sell at the first sign of profit, and make sure that you don't let a losing trade get away. Losing a little is ok, losing a lot of money is not.


Warren Buffett
Warren Buffett, undoubtedly one of the most successful investors of all time, says: "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

Therefore, he would want you to evaluate the quality of the company first, before considering its price. Don't expect a great company to sell for a low price; "bargain bin" companies will sell at a bargain bin price, and will give you equivalent results.


Bill Gross
Bill Gross, who owns one of the largest bond funds in the world, PIMCO funds, says: "Do you really like a particular stock? Put 10% or so of your portfolio on it. Make the idea count. Good [investment] ideas should not be diversified away into meaningless oblivion."

Here, he talks about diversifying your portfolio. Be cautioned, however, that this strategy also runs the risk of diminishing your profits when one of your picks makes a big move while other names don't.


Prince Alwaleed Bin Talal
Well-known in the Saudi investing world, he founded the Kingdom Holding Company. He once said, "We're getting hurt, but I'm a long-term investor."

And apply to him it did. Prior to the 2008 financial crisis, he held a sizable stake in Citigroup, and his real estate investments in India lost considerable value after the 2009 recession.

But instead of selling, he held on, which is what many of the really good investors have done to get rich. Take a long view of your position by holding the stock for a long period of time, taking large events out of consideration and collecting dividends in the meantime.

According to the Forbes article, it is ok to trade short- and medium-term, but the bulk of your portfolio should be in long-term holdings.


Carl Icahn
Carl Icahn, a private equity investor and modern day corporate raider, has made his fair share of enemies over the years.

He says, "You learn in this business … If you want a friend, get a dog."

What this is saying is, when investing, don't act based on a tip from a friend. Rather, do your own research based on facts obtained from trusted sources. While you can consider other people's advice, this should not be the only reason why you'll invest your money on a particular stock.


Carlos Slim
One of the richest men in the world says, "I am convinced that all this poverty in Mexico and in Latin America, like it's happening in China is the opportunity to grow. It's an opportunity for investment".

His quote reflects the mindset of the best investors. They are forward-thinking, "investing now for what will happen later", according to Forbes.

So instead of jumping on the bandwagon of the hottest stock now, be on the lookout for the next big thing while making sure your portfolio is anchored with great companies that have a good long track record.