Monday, July 11, 2011

What are the 3 rules of investment and why are they SO important?

Because I'm somewhat of a conservative investor, I follow the 3 rules of investment. 

The first rule of investment will tell you to be in the right sector or asset class. An example of this would be back in the late 90’s technology stocks were leading the market, before that it was biotech stocks.  When those sectors were leading the market it seemed you could buy any biotech stock or technology stock and you made money.  Even if you were invested in a horrible company the share price still went up.  If you instead choose the best utility company for example that was run almost perfectly with increasing revenues and increasing earnings, those shares rose much less so your return was minimal at best. Precious metals is, without doubt, the right asset class to be in now!

The second rule of investment will tell you that once you invest in the right sector or asset class, diversify in that sector (don’t put all your eggs in one basket).  In relation to precious metals, don't just buy gold or just buy silver.  Buy a combination of different precious metals.

The third rule is to not use too much leverage.  I think of leverage like a glass of wine.  One glass per day is ok but 10 glasses and you are abusing it.  Don’t abuse leverage.

Experience shows us that following the rules of investment gives us the greatest opportunity to make money, and at the same time controlling risks.  

People break the rules of investment because they get greedy.  Experience shows us that trying to outguess, outsmart, or out time a market will only put you at greater risk and therefore put you in a position to have a higher probability of losing.  We have all heard of people losing money when the market or asset class is performing amazingly.  This will typically only happen when they break the rules of investment.

Do you want more information or have questions about investing in gold and silver?  Feel free to contact me at blakepollack@gmail.com

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