looking at your portfolio? If you can’t, you don’t know your investments well enough to own them or you’re trying to follow too many. You’re not going to be able to find more than a handful of extraordinary investments at any given time. Why own anything that’s not extraordinary? Another good test for your portfolio is to make sure that there’s not a single position that could cost you more than 5% of the value of your overall portfolio. Don’t end up with so few large positions that a catastrophe in one stock wipes out all your other gains for the year. The last part of our strategy (Step 4) to always beating the market is do everything you can to avoid the damage from fees and taxes to maximize your long-term, compound returns . Whenever possible, keep your assets in vehicles that allow you to compound your investments tax-free. Minimize trading and fees, which enrich your broker, not you. Look for companies whose management is well-known for doing tax-efficient deals and rewarding shareholders in tax-efficient ways. And always reinvest your dividends – either in the same companies or in new ones that offer better value. Studies show that most investors perform terribly when managing their own assets. That doesn’t mean that you can’t do well. It does mean that the odds are stacked against you. So read and reread this list. Start living by it. 1. Never buy a stock whose intrinsic value you can’t estimate reliably – and always get a big discount when you buy. 2. Allocate to value: Wait to make major investments when other investors are panicking and truly safe, outstanding opportunities abound. 3. Use good money-management techniques. Follow position- sizing guidelines and trailing stop losses. Never own more positions than you can carefully follow. Always keep a large cash reserve.
181
Made with FlippingBook - Online Brochure Maker