Investing Principles

Have an emergency fund

Before investing one dime, make sure you have an emergency fund savings account with a balance that will cover all of your expenses for 4-6 months. This is a good rainy fund in the event of a job loss or other emergency. If you invade the emergency fund, make it a top priority to replenish it.

Buy the stocks of quality companies

Buy companies that make good products or services, have an economic moat, have strong market share, good profitability and strong cash flow.

  • If you are not going to put the reasonable amount of work into managing your money then find solid active fund managers that invest in moat companies. The fund companies might not say moat in their literature. Terms to look for are competitive advantages, free cash flow, and return on invested capital (ROIC). If the fund manager has these terms in their process, its worth a look. Be sure to look at how often a fund’s portfolio turnover. You want a fund that holds their stocks for long stretches.
  • Buy index funds and or ETFs as a last resort or if you have to in your employer plans.

Understand the companies you buy

If you have no idea what a company does move onto the next company. There are plenty of simple companies that do simple things that make investors money.

Hold your stocks for the long-term

Long means as long as the reason you bought the company in the first place still exists.

Don’t get hung up on the price you are paying per share.

If you buy in over time, owning shares in solid companies matters more than the price you paid.

Don’t be swayed from your rationale for owning a good company.

If you do your research, the company has a moat and you watch the company – stay put.

Look at your companies’ annual reports.

The annual report is a great resource to see the trajectory of the company as well as leaderships’ thoughts.

Don’t worry about taking profits in winners.

Let your winners keep winning.

Cut companies that lose their moat.

To that end, all companies will hit rough patches. Be patient with your quality companies.  Occasionally, a winner becomes a loser. How to recognize a company that has lost its moat? You will see things like: competitor starts to each their lunch, management loses sight of what makes the company win, ROIC starts to fade, or worse, goes below cost of capital.

Don’t sell because of economic conditions.

Sell when you are scared and you will have trouble getting back in at the price you originally bought a good company at.