Even after the recent correction there are a lot of overpriced, overhyped stocks in the market, but you can still chart your way to success. Here are nine rules you can use to guide your way. I first listed these back in August of 1996, but they work just as well today as they did then.
Investment success hinges on a handful of time-tested principles:
- As Albert Einstein pointed out, compound interest is the greatest mathematical discovery of all time. I write every issue with a compound interest table at hand.
- Investment results are inversely proportional over time to trading activity.
- Market timing is a bankrupt strategy whose time has never come.
- Sales charges and high expenses are the toxic waste of the mutual fund industry and will kill long-term performance if not shunned.
- Dividends and dividend growth are the dominant considerations for long-term conservative investors.
- Past performance in the mutual fund industry has virtually no correlation to future results and often is a devastatingly contrary indicator.
- Stocks will outperform bonds and cash long term and belong as a cornerstone in every investor’s portfolio.
- Since the mid-1920s, the long-term total return on stocks has been about 10% (dividends and cap appreciation). Plot to target a potential 10% consistent long-term total return with as little risk as possible.
- Diversify, diversify, diversify. None of us has tomorrow’s newspaper. Set yourself up to win in any investment environment.