by Mark Ford
I have several dozen rules. Here are 10 of them:
1. I don't invest in anything I don't fully understand.
2. If I am determined to break rule No. 1, I admit to myself that what I'm doing is gambling, not investing. And I proceed fully expecting to lose every penny I put on the line.
3. I would never put all my savings into stocks or even into a portfolio of stocks and bonds. I have my money allocated in at least a half-dozen asset classes at all times.
4. I don't try to get from any asset class (stocks, bonds, real estate, commodities) or subclass (blue chip stocks, growth stocks, etc.) more than 10% to 20% of its natural (historic) rate of return. When someone recommends an investment "sure to" do much better than that, I steer clear.
5. Before investing in anything, I have a Plan B in place. A proper Plan B is a preset (and if possible an automatic) protocol that cashes me out of the deal as quickly as possible and with the least amount of damage.
6. As a rule, I don't invest in growth stocks. I prefer buying shares of world-class, income producing, Warren Buffet-type companies that I feel confident will still be strong in 20-plus years. And I do not sell these stocks in market downturns. I often buy more of them in order to "average down" my buy-in price.
7. I devote the largest portion of my portfolio to income-producing real estate and use a trusted partner to manage them.
8. The next largest slice of my investment pie goes to private businesses - either in stock or debt or convertible debt. When considering such investments, I ask myself how well I understand it and whether I have some control - or at least influence - on management, should they take actions that seem wrong to me. (And I have my Plan B.)
9. I don't "invest" in hard assets or currencies because I don't consider them investments. (They have little or no intrinsic value, do not produce value and do not earn income.)
10. I never invest more than a very small portion of my net investible wealth (net worth minus my house and other things I don't intend to sell) in any single investment. (Long ago my limit was 5%. Now it's 1%.)
Source: The Oxford Club