10 First Principles from Investing Legends for Better Decision Making Now

We're living in crazy times. Coronavirus, lockdowns, recession and riots. It's enough to make even the most seasoned investor wonder what to do next. Not to mention what it all does to an average person.Knowing which way to navigate your portfolio seems almost impossible. Leaving you frustrated, scared, and angry about what is going on in the world.So, what is the solution? Follow the advice of investing legends. Pablo Picasso famously said:

“Good artists copy. Great artists steal.”

So, don’t be a hero and simply use their advice in your portfolio. Use them as your investment commandments. Write them on any piece of paper and drill them into your subconscious. And every time you have to make an investment decision, review them religiously. Here’s my personal list of 10 investment commandments:

1. Never lose money. 

“Rule #1: Don’t lose money. Rule #2: Don’t forget rule #1.” - Warren Buffett

Of course, Buffett lost $23 in the financial crisis of 2008. So, how can he say that? He’s simply referring to a mindset of intelligent investors. Don’t go into an investment prepared to lose. Be informed and do your research. And especially don’t gamble. 

2. Go against the crowd 

"Buy when there's blood in the streets, even if the blood is your own." - Mayer Amschel Rothschild

This simply means that when markets are in the panic selling you want to be the one buying at deeply discounted prices. Going against the crowd can be an effective way to make money. And beware when all the experts and forecasters agree. 

3. Invest in what you know

“Know what you own, and know why you own it.” - Peter Lynch

He is referring that average investors should invest in assets they know and understand. In other words by Peter Lynch,  "Never invest in an idea that you can't illustrate with a crayon."

4. Spread your eggs between many baskets 

“Don’t look for the needle in the haystack. Just buy the haystack!” - Jack Bogle

If you don’t understand the investment, it is always better to diversify. When you own the entire stock market through an index fund you have the optimal investment strategy. Discipline is best summed up by staying the course.

5. Cut your losses short

“It's not whether you're right or wrong, but how much money you make when you're right and how much you lose when you're wrong.” - George Soros

A beginning trader must first learn how to lose in order to learn how to win. Losing is primary a function of capital preservation. So, if you have made a mistake, have the discipline and cut your losses as quickly as possible.

6. It’s never different this time 

“The four most dangerous words in investing are: ‘this time it’s different.’” - Sir John Templeton

According to John Templeton these are the most expensive words in investment. They lead the unwary to pay any price for a good story as shown by the technology bubble of 1998-2000. But also it leads the unwary to sell for any price when markets crash as shown by the recent corrona crisis.

7. Take your profits

“I made my money by selling too soon.” - Bernard Baruch

And just like an investor must learn how to lose, he must learn how to take the profits. Set a target price and never regret taking profits at target prices. But keep in mind that, over the years the most profitable are produced by holding, not by active trading.

8. Buy low, sell high. 

“Buy cheap and sell dear.” - Benjamin Graham

In the investment industry, Mr Graham is also known as the father of security analysis and value investing. So, take his advice and buy assets when there was a bargain and sell it when holdings were overvalued. 

9. Get the best advisor

“I just want to be right—I don’t care if the right answer comes from me.” - Ray Dalio

You should either learn how to manage money on your own, or select a financial advisor. But be very careful by doing so, and don’t pay others to lose your money. 

10. Be patient

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”  - Paul Samuelson

With the benefit of hindsight, it’s obvious that it pays to be patient with investing. This applies to stock, bonds or bitcoin. So, be patient, and wait for the right time to buy. Once you set your asset allocation, stick to it no matter how greedy or scared you become.So yes, it's impressive knowledge by investing icons, but an important thing is to use in your portfolio. Use them as commandments. Write them on any piece of paper and drill them into your subconscious. 

And every time you have to make an investment decision, review them religiously.