Investment Rules And Strategies - Buyandhold 2012's Blog

From https://seekingalpha.com/instablog/1677741-buyandhold-2012/5102612-investment-rules-strategies

Jan. 21, 2018 10:53 AM ET

Summary

The Chowder Rule.

Benjamin Graham, Warren Buffett and Charlie Munger.

Buyandhold2012 and his mother.

In an article on March 23, 2016, Ben Reynolds of Sure Dividend explained The Chowder Rule and discussed Benjamin Graham.  I am quoting Ben Reynolds below.

The Chowder Rule

Rule 1: If a stock has a dividend greater than 3%, its 5 year dividend growth rate plus its dividend yield must be greater than 12%.

Rule 2: If a stock has a dividend yield less than 3%, its 5 year dividend growth rate plus its dividend yield must be greater than 15%.

Rule 3: If a stock is a utility, its 5 year dividend growth rate plus its dividend yield must be greater than 8%.

"Benjamin Graham required a margin of safety in his investments.  If he thought the fair value of a stock was $100, he wasn't willing to pay $100 for it. Graham typically required a 33% margin of safety.  In the $100 example, Graham would only pay $67 or lower for the stock."

"Combining this margin of safety principal with business  trading below liquidation value allowed Graham to compound his wealth at around 20% a year for decades."

Other successful investors have been quoted below.

The Warren Buffett Rule

1) Don't lose money.

2) See rule number 1.

The Charlie Munger Rule

"Assiduity is the ability to sit on your ass and do nothing until a great investment opportunity arrives."

Of course, I have been nowhere near as successful an investor as Warren Buffett, Charlie Munger, and Benjamin Graham.  But I do have my own rules for investing which I will summarize below.

The Buyandhold2012 Rule

1) Focus on stocks that have outperformed the S&P 500 for at least the last 10 years.  The longer the better.

2) Focus on stocks that have raised their dividends for at least the last 10 years.  The longer the better.

3) Avoid buying stocks with trailing or forward P/E ratios higher than 20.

4) Avoid buying stocks with 5 year expected PEG ratios higher than 2.00.

5) Avoid buying stocks with Betas higher than 1.50.

6) Avoid buying stocks that are losing money.

7) Focus on stocks with earnings that at least double every 7 years.  Earnings that at least double in less than 7 years are even better.

8) Rarely, if ever, sell.  I used to believe in never selling.  But my experience with GE has made me change my mind about never selling.  I should have sold GE in 2000.  Don't tell my mother.  She still believes in never selling except in the case of a financial emergency, or if the money is needed to live on, or if the company is bought out for cash.

9) Reinvest your dividends.  I drive to the bank and deposit my dividend checks into an account where the money is immediately accessible. Then I reinvest some of that money whenever I see a good buy in the stock market. Some people automatically reinvest their dividends.  That is called DRIPPING  Over the long term, the power of reinvested dividends should improve the performance of your portfolio.

10) Never make any investment decisions based on fear or greed or pride.

11) Never chase yield

12) Avoid high flying momentum stocks.

13) Be optimistic.  If you have your health, you have just about everything.

14) Study the investment philosophy of successful long term investors.  Peter Lynch, Benjamin Graham, Warren Buffett, Charlie Munger, John Templeton, Grace Groner, Anne Scheiber.

15) Never be envious of people who are more successful or richer than you are.  You do not know what problems they may have.

16) Time in the market is every investor's best friend.

17) You do not have to bat 1000.  I have made many financial mistakes.  More mistakes than correct decisions.  And I still did fairly well over the long term.

18) Successful investing in the stock market is not a sprint, it's a marathon.

19) Always have your eyes firmly focused on the prize, which is an ever growing dividend income stream.

20) Successful investing in the stock market is not a full time job.  Enjoy your life.  Play golf.  Travel.  Have fun.  After all, you only live once.

21) What has the stock market taught me over the long term?  Humility.

And, last but not least, my mother's rules.  She has been a better investor than I have for 48 years.  I made several mistakes when I failed to listen to her advice.

Mother's Rules

1) Be optimistic.

2) Never discuss sex, politics or religion.

3) Better to begin investing when you are as young as possible.  But it is almost never too late to become a successful investor.  I began investing at age 45 after going through two divorces and bankruptcy. 

4) If you can afford it, give money to charity.

5) Your health matters more than money.

6) Don't spoil your children.  Make them stand on their own two feet.

7) If it doesn't make you healthier, better looking, smarter or richer, don't do it.

8) It does not take a lot of money to make a lot of money in the stock market over the long term if you have an intelligent investment strategy.

9) No one is born knowing how to successfully invest over the long term.  Study the behavior of successful long term investors.  If you are incapable of managing your investments on your own, it is extremely important to find a good financial advisor who puts your financial interests ahead of his own.

10) Study the words on Kazantzakis' grave.  "I want nothing.  I fear nothing.  I am free."

11) Intelligence is the ability to change.

12) I have instructed the grandchildren not to ask their dad for financial advice but to come to me instead.  Their dad has made more financial mistakes than I have.

Disclosure: I am/we are long GE.

Additional disclosure: All of the stocks in my portfolio are listed in my profile. All of the stocks in my mother's portfolio are listed in my blog "Interview With Mom."

I am not an investment professional My mother is not an investment professional.

Our thoughts about investing may not be appropriate for your own financial situation. Always do your own due diligence. And seek the advice of a good investment professional to give you extra peace of mind.