Monday, October 11, 2010

Investment rule one - never lose money

Today I randomly choose one book from my library, it's related to Warren Buffer.
Chapter one - the writer say,
Rule No.1: Never lose money. Rule No.2: Never forget rule No.1. This is the second time I read this book, felt so important and need to write down some points for future reference.

Yes, never lose money in stock market, if you fail to do this, better do not invest. The question is how not to lose money? I think first step is find a company that always pay out stable dividend. Invest and plan to hold it for at least one year. If you can find a company say pay out dividend of about 8% p.a., then holding for one year at least better that FD.

But why need to hold for one year, someone think they should sell high and buy low? I am not as clever as those who can find the high and sell it, so I choose second option, buy and hold good company. Since we only target those company paying consistent dividend of 7% or 8%, these company can grow 20 or 30% is not a problem. Hence, holding for one year should see the result. One year later, we can review the result, is 8% good enough? Usually notice the share price already go up 10 or 20% due to good performance of financial result. In case if the share price still remain the same or lower, then we may need to review the company's overall result again before further decision make.

This is the meaning of Never Lose Money!

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