Uncovered: 3 rules for new investors

Fsp Invest, 10 Dec. 2013

Tags: how to invest successfully, rules for new investors, new investors, investment portfolio, investment strategy, investing, investments,

There’s a lot of information out there on ‘smart’ investing. But if you want to learn anything about investing, these rules encompass it all. By following these three simple rules, you could achieve great results. Read on to uncover the three rules that every new investor should know…

There are three things you can do to greatly increase your chances at success, Porter Stansberry in The Palm Beach Letter explains...

Stick to these rules to boost your investments

Rule number 1:
First, only invest in companies that pay a substantial dividend (say, at least 3%). And that have a long history of increasing their dividend. You may count money spent on share buybacks when measuring the dividend yield.

This will do several things for you. It will narrow your possible choices substantially, giving you an investment "universe" that's more manageable.

It also automatically prevents you from buying shares that are speculative or overpriced. And finally, it will greatly reduce the odds that your account will ever show a loss.

Earning 3% a year isn't much, but it adds up, especially if the company continues to increase its dividend. After a year or two, even if the share price dips, you'll probably still show a gain, thanks to the dividend.

Rule number 2:
Second, out of the companies that are paying a good dividend, only buy companies whose businesses you're able to easily understand and that you judge to have a solid competitive advantage.

As a test of your understanding, read the company's annual report. You can get a copy online at the company’s website.

If you're not willing to spend an hour or two reading a company's annual report, are you really ready to invest 4% to 6% of your life savings in its shares?

It’s baffling that investors will readily pile money into companies that they don't understand… And that they make no effort to understand.

Rule number 3:
Third, only buy attractively prices shares. That’s when there's a substantial margin of safety in the stock.

This means waiting to buy until the price of a company's shares are so low that the company could afford to buy back all of its shares.

This step makes it nearly impossible for you to lose money investing. And this ensures you garner the benefits of compounding. This is because your entry price will be small relative to the company's assets and future earnings.

If you will follow these three rules you can achieve world-class investment results. You can do this without anyone's help in about 10 hours per month.

So there you have it, the three rules that every new investor should know.

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