A Personal Finance Blog for Malaysian: 9 Principles of Wise Investing

Saturday, November 5, 2011

9 Principles of Wise Investing

The only way to be financially wealthy (exclude inheritances) is not by earning more but "by investing".
High income but no saving and no investment = living high only.
High income with good saving and good investment = Fast track to financial wealth
Middle income with good saving and good investment = Guaranteed financial wealth in due course.
So, what are these nine (9) principles*?

  1. Know the numbers and what they mean. Examples:-
    1. Earnings per share
    2. Price earning ratio
    3. Net income after tax
    4. Free cash flow
  2. Invest in products you understand.
    1. Stocks is share of ownership in a business and...
    2. Business provides goods and services.
  3. Read widely to value prospects.
    1. Price is what you pay. Value is what you get.
  4. Always maintain a margin of safety.
    1. Rule No. 1: Never lose money
    2. Rule No. 2: Never forget Rule No. 1
  5. Become a fanatic about investment
    1. Be passionate about investment.
    2. Get excited with business and numbers.
  6. Avoid buying "popular' stocks
    1. The dumbest reason in the world to buy a stock is because it's going up.
  7. The secret of compound interest
    1. Value investing is based on the compounding of interest.
    2. Buy stocks with good dividend.
    3. Reinvest the dividend income.
  8. Know when to invest.
    1. It is not about time the market but....
    2. Buy when everybody else is selling off.
  9. Never run with the street pack.
    1. Risk comes from not knowing what you are doing.

*Extracted from: Warren Buffett: Master of the Market by Jay Steele. Published in 1999.