Investment Tips – Never Lose Money
I’ve got yet another investment tip for you. A recent copy of Forbes magazine has a list of 365 tips on investing to get rich. I thought I’d go through some of the ones I found the best and expand on them to provide a more detailed discussion. The following is a sponsored post.
This investment tip comes from Warren Buffet: “Rule #1 is never lose money. Rule #2 is never forget Rule #1.”
Investment Tips – Never Lose Money – Background
This investment tip is really geared toward speculators (which I’m against). It is geared towards folks that are stock pickers vs. those of us that invest in low fee market index funds.
The basis of this tip is that if you’re right, then you’re right. And if you’re wrong, then you’re wrong. What I mean here is that if you invest in something and the price goes higher, then great – you made a good decision. You should hold the stock for a good long while and realize as much profit as possible.
But, what if you buy a stock and it goes down 5%, 10%, or even 15%? Well, you were wrong! This was a bad speculation and you’re currently showing a paper loss. This investment tip from Warren Buffet would instruct you to cut you losses short. This means that if you begin to see a loss, don’t be afraid to take the small loss before it turns into a big one.
And, whatever you do, please for the love of God don’t double down!!! If you were wrong and the stock dropped, why would you throw more money at the problem? This is what Warren is trying to help us avoid with this investment tip.
Investment Tips – Never Lose Money – My Take?
My overall take on this investment tip is that it is complete stinker! There, I said it! This is like saying “don’t jump off bridges if you want to live” – it’s obvious to anyone who’s still alive and well. This is why this investment tip drives me crazy every time I read it!
This investment tip is also encouraging folks to speculate in the market with individual stocks versus dollar cost average into market index funds with a buy and hold technique. Trading, (i.e. trying to time the market), and speculating are a sure fire way to under perform the market in the long-run for a majority of us. Warren himself has said dozens of times that 95% of folks should dollar cost average into low fee market index funds. So, why this seemingly contradictory advice?!?!
Investment Tips – Never Lose Money – Final Thoughts
This tip is garbage – we should all move on. I believe that everyone should avoid trying to speculate and time the markets. It doesn’t work for a majority of us and is almost guaranteed to put our return behind the market average over the long run! If you’re looking for more Financial investment recommendations, see some of my other investment tip articles below:
