One of the Wisest Investment/Trading Lessons We Can Learn.
Many years ago, when I was just putting my foot on the first rung of the success ladder, I had the good fortune to sit next to a wise, old and very wealthy businessman. I have always been a keen listener to older people, who have proven what they say is true, by the results they get. Sadly, the old man died shortly after our meeting, before I could get to know him better, but what he told me has stayed with me and always held true.
He explained that I should enjoy my bad deals as much as I enjoy my good deals.
It took quite a while before his lesson sank in to my business philosophy, but when it did kick in, there was no looking back and being upset at flawed deals. So how can we use this advice in the context of investing/trading in the erratic stock market?
Oftentimes, when we buy a stock it will go down. If we just buy and hold, we will feel uncomfortable every time it hits a new low. However, if we buy the stock at regular intervals with limit orders (say, every one dollar drop) then we will feel we have made a good deal and focus on the price of the latest acquisition.
The main criteria before investing this way is to research our stocks before taking the first plunge and only make the first purchase on a big down day. A rule of thumb is to try and buy the stock below the middle of its yearly trading range. Look for stocks with no debt, low price earnings multiple, super management, reasonable dividends and good forward looking statements. Never buy on margin and only use money that will not be needed for five to ten years.
If we have a hard time picking great companies then we can invest/trade in the market indexes i.e.; DIA DOW 30, SPY SP 500, QQQQ NASDAQ 100.