Basic Rules of Investing

I posted this at some group in 2006, and thought it would be a good idea to post it here as it is still useful relevant article. Enjoy my revised 2006 word of wisdom. :p

There are many choices of investment available these days within single click away. Many people never realize what they are putting their money on. They just follow what other people do or advice and in the end lose all their money.

So, the first MOST important rule is,

"Never ever invest in something you don't understand"

Many people just look at the gain, without realizing what are the risk involved. These cause them to easily wipe out their investment. If you don't know anything about investing, the possibility of someone cheating your money is high. Take "Pyramid Scheme" for example. Many people didn't understand what it is all about, but yet they still invest on them. In the end they not only lost
their money, but lost their good relationship with their friends and family as well for introducing them into the scheme.

So, the solution is...

"Understand what you are going to invest on"

Yup. Learn, study about them. Ask all sort of questions. Find out whether it is legal or not. Try to get REPUTABLE 3rd party opinions. Reputable mean, someone who knows inside out about investment. Don't get influence by the figures they show you. Find out all the risks
involved. Think rationally and make a move, whether to invest or not. Most importantly, make sure you will be financially stable if you lost all your money in the investment.

"The greater the return, the greater the risk"

Find out the risk involved and study whether you can take such risk or not. One way to find out how much risk you can take, (especially for stock market), try to invest a small amount of money (make sure this is not your life savings) by buying some stock. See if you can sleep soundly in the night or not. If even a 1 cent drop gives you sleepless night, then definitely its not for you.

"Learn to minimize the risk/loss"

Many people do not know just when to stop their losses. They always keep on hoping that the loss will be temporary, but the truth is you will never know. It could become worse, if you don't get out as soon as possible. To learn to minimize a risk or loss is not easy, but it can be learned through experiences. Read books on risk management. It could help you out to understand and get new ideas on how to manage it.

"Learn from mistakes"

Everybody do make mistakes, but don't let the mistake haunt you. Learn from it, and use it as a powerful tool of wisdom. I have seen many people, who keep on repeating the same mistake over and over again. The only good habit they have is they never give up, but its useless if you still repeat the same mistakes. Also, the earlier you do a mistakes, the lesser it will impact you. But, it doesn't mean you must do a mistake to gain experience. Another away is learn from other people's mistakes, they are abundant.

As for Stock/Derivative Market (Which can also be applied to other sort investment), many books or people says there are 2 important rules,

1. Don't be greedy.
2. Get rid of fear.

but I would add another 2 and make it 4 important rules, they are:

1. Don't be greedy.
2. Get rid of fear.
3. Never ever regret.
4. Don't be too hopeful.

That's all for now. I hope this would help to enlighten many future and current investor to
prepare themselves before they start to invest.

Happy investing.