Extracts fm Wallstraits,

8 Simple Rules to Invest Successfully

1. Timing the market doesn't work. Tempting as it is, no one can tell what is "high" and what is "low" until they are somewhere in the future looking back. Many academic studies have been done to show that even with perfect timing to invest at the low points in the market each month, versus just investing methodically on the first day of each month has little effect on your long term returns. History also warns us that markets can move up with amazing speed, jumping large percentages in just a matter of days. If you are out of the market on these few days each year, you lose an important chunk of the market's return.
   
   
2. Invest in "Companies" not "Stocks". Again, don't look for a short-cut...like a price chart, to help you know what to buy (and when to buy). Instead, stay focused on buying the highest quality businesses you can find. Over the long term, the best businesses return shareholders the highest returns. Time spent on "what to buy" is time better spent than speculating about "when to buy".
   
   
3. Stay cool. Markets go up and markets go down, sometimes with surprising volatility. When you company's stock doubles, don't rush to "take a profit" or you'll miss it doubling again, and again. Again, keep it simple and focus on the performance of your business, not the performance of the stock price...the two will eventually correlate quite well. When the market sinks, and you are down 30% or even 50% from your purchase price...don't panic. If your business is still performing well, be patient, there's always another new high on the horizon.
   
   
4. Diversify, don't Diworsify. It is good to apply one or even two strategies to your portfolio. It is not wise to hold over 10 stocks in your portfolio at any time if you are a part time investor. It's just too hard to follow more than 10 businesses while holding down your full time job. Also, more than 10 stocks will dilute a stellar performance by one of your picks. Be consistent with your strategy (or 2). If you're a "Gorilla" (hi growth) investor, don't turn into a small-cap investor overnight to chase the market sentiments. Confidence and patience in your strategy is best. At the same time, it is OK to fill your 10-stock portfolio with 5 growth picks and 5 small-cap picks, and be consistent with both halves.
   
   
5. Don't be scared to buy your favorite businesses when everyone else says they are too expensive. Sometimes they just keep getting more expensive for years and years. Coca-Cola is 150 years old and has seldom, if ever looked very cheap to stock analysts...and yet it is the best performing investment of the 20th century. Microsoft has never looked cheap, but it has given shareholders the best returns over the last 15 years.
   
   
6. Take what the market gives you. Having said what we said in Rule #5, it is still a good idea to add to your holdings of your favorite companies when the market sentiment is against them for whatever reason. From time to time, EVERY company and every sector comes into and out of favor of investors and analysts. When you follow a few great businesses closely and know they are performing as well today at $5 per share as they were a month ago at $15 per share...don't be afraid to add to your holdings. Be confident in your own independent ideas and analysis. Odds are you have more common sense than the market because your outlook is longer.
   
   
7. Don't invest once, invest over a lifetime. Dollar-cost-averaging is a term used to explain the theory of investing a bit of your earnings throughout your entire life. The steady investments over time produce stunning compounded returns over long periods of time. You will be amazed how much you can accululate over a lifetime setting aside small sums, even with a modest income. Anne Schreiber, the little old lady who died a billionaire in New York City several years ago was the most prominent example. She had set aside small sums of her income throughout life, mostly into a portfolio of about 10 stocks, and her annual returns over 40 years were over 18%, just behind the legendary fund manager Peter Lynch who had teams of analysts and the best equipment and most timely information available. Of course, living just a bit below your means will give you a head start on setting aside more capital for investments. You don't have to suffer, just be less extravegant.
   
   
8. Spend almost all of your time deciding what to buy. Careful selection of your stock portfolio will save agony later on. As Warren Buffett says, pretend you have a punch card with 20 punches. Every time you buy a stock your card gets punched. When the 20 punches are gone, no more buying the rest of your life. Buffett has accumulated wealth faster than anyone in history, and he made the vast majority of it with just a handful of choices.