The first lesson I learned about investment that if I don’t have my own principals, my investment portfolios look like the boat wobbled in the sea.
The principals we set out that we need to create them by ourselves. We read books, listen to the interview, analyze our actions and get experiences from mistakes we made. There are many ways to set out the principals. If we are looking for it, we will get it.
Talk about my own one, it’s simple.
First, invest in the sectors that I understand and I am interested in.
Second, Usually I will choose the business with well-known and doing well in that sector via the ratio and company news/reports I read. The ratios are about:
- ROE: above 15%
- ROA: above 5%
As I believe in the business can create a high percentage in Equity and in Asset, they can grow better than others.
Third, I listed out the business with the acceptable price and place the purchase order The acceptable price is different depending on different people’s assumption and calculation. Again, I just want to make my investment so simple as much as I can. So I based on only two of this below. Of course, what I said above that I read a lot about the business which I am going to invest it in before I consider its market price for ordering the purchase.
- P/E: under 15
- Beta: under 1
I included the beta in my calculation as for risk management purpose. Investing in any areas always has risk. I want to invest in business with low risk and high returns in equity and assets.
Fourth one is “doing nothing”. I don’t like to trade many. I know there are many people who can make money via trading stocks. But sorry It’s not applied for me. Sometimes we don’t do anything is better. We buy a good business with an acceptable price and hold it still. The business will take care the operation by itself. We don’t need to look at it everyday and feel fluctuate when the market price is up and down.
Quoted from Warren Buffett “But you buy a farm, you buy an apartment house so you can’t resell it tomorrow. I don’t know the costs of moving around or you get something handed to you liquidity. You know which is instant and so and the cost of doing it or pennies you know compared to other kinds of investment activity. So because they can so easily move around. They do move around and moving around is not smarter than investing.”
Buy a good business with an acceptable price in a good sector and do nothing. That’s my own principals. How about yours? Did you set out your own principals yet? If not, then start doing it today. Believe it or not but it helps me a lot in investing journey.
Good luck everyone!