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Rupert Hargreaves
Rupert Hargreaves
Articles (610)  | Author's Website |

8 Investing Rules That Have Stood the Test of Time

Lessons from the archives of investing.

June 12, 2018

It's always interesting to search in the archives of investment articles because you never know what you're going to find.

While the investment elite -- Warren Buffett (Trades, Portfolio), Charlie Munger (Trades, Portfolio), and Seth Klarman (Trades, Portfolio) -- tend to attract the most attention, there are also literally tens of thousands of other seasoned investors out there who have put out advice, which often tends to get swept under the rug.

While looking for old archive articles from Walter Schloss, one of the greatest deep value investors of all time, I stumbled across this newspaper cutting from December 27, 1999. The article, titled 'Eight Investing Rules That Have Stood The Test of Time' does what it says in the title.

What's interesting about this article, in particular, is that it was published just a few months before the market topped out in the dot-com bubble. By the second half of 2000, the bubble had well and truly popped.

The author of the article, Thomas Easton might not have been able to predict what was about to happen, but his eight rules should have been warning enough to investors that the buoyant market environment would not last forever.

And these rules are still as valuable today as they were nearly two decades ago. So here they are:

1. Don't trust the market to value a stock

Easton was not a supporter of the efficient market theory. He said: "Even when the bales of information are available through the click of a mouse, the market is too inefficient and prices don't always reflect values." He went on to say, "The fact that a hot young technology company is trading at $280 a share does not make it worth $280 a share."

2. Don't think it is easy to beat the market

This is a fairly self-explanatory piece of advice. There's a reason why Warren Buffett (Trades, Portfolio) has advocated the use of index funds for investors who don't have the time or inclination to analyze stocks.

If it was easy to beat the market, everyone would be doing it. The fact that only a handful of investors can, is warning enough.

3. Following a trend works over short periods, not long ones

In the late 1990s, trend following was all the rage but Easton wasn't allowing himself to be pulled in. "What's the opposite of trend following?" he wrote. "The philosophy that price matters. Your objectives as an investor are to pay less than a company is intrinsically worth as a business concern... if you can't evaluate its earnings and assets, you shouldn't buy it."

4. You can't time the market

It has been proven time and again that trying to time the market is a fool's quest. It's just not possible without inside information. "The broad direction of the market is impossible to gauge," Easton wrote.

5. Base your expectations not on optimism, but on arithmetic

The difference between investment and speculation is that investors invest according to fundamental values while speculators are trying to make money from rising prices, with little concern about the underlying business. Speculation is a trade that requires a good deal of optimism. It also requires a good deal of luck.

6. Buy OPOs, not IPOs

Buy old public offerings, not initial public offerings. To borrow Benjamin Graham's Mr. Market analogy, the price of OPOs is determined by a manic-depressive Mr. Market, who may offer you an exceptional price if he's feeling depressed. On the other hand, IPOs are brought to market by brokers and business owners who want to make money. You've got to ask, why are they selling in the first place? And they certainly won't be selling at a discount price.

7. Buy cold industries

The best value will be found where others aren't looking.

8. Hang in there

The eighth and final rule is based on the power of long-term investing. Over the past 200 years, the chances of losing money in the market have been about 50-50 for a one-day holding period. However, over a holding period of two decades, including reinvested dividends, the chances of losing money fall to zero.

The best way to become rich from investing is to sit back and let the power of compounding do the hard work for you.

Disclosure: The author owns no stock mentioned.

About the author:

Rupert Hargreaves
Rupert is a committed value investor and regularly writes and invests following the principles set out by Benjamin Graham. He is the editor and co-owner of Hidden Value Stocks, a quarterly investment newsletter aimed at institutional investors.

Rupert holds qualifications from the Chartered Institute for Securities & Investment and the CFA Society of the UK. He covers everything value investing for ValueWalk and other sites on a freelance basis.

Visit Rupert Hargreaves's Website


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