These are my 12 rules for investing. I'm not a financial or investment advisor so you are responsible for any actions taken with or without this advice--but these rules have been instrumental in me doubling my day job salary with investment income and are leading me down a foreseeable path to financial independence (currently targeted for just over 4 years from now, but shaving off an average of 2 days for every 1 day that passes).
You can follow me on Twitter, where I continually talk about stuff like this, mostly in the area of Cryptocurrencies (like Litecoin: $LTC): https://twitter.com/antic
And find me on TradingView where one subscriber says, "...your advice / charts have been worth their weight in gold!" - aformby, June 2017
https://www.tradingview.com/u/atomantic/
#1. 😱 Only Invest Money You Can Afford to Lose
Especially when you are starting out and learning the ropes--you WILL make bad calls, you will sometimes find the market shift unexpectedly, leaving you holding onto a purchase price higher than the current rate. These are things you can easily live with if you don't have to get your money out of the system in order to pay your bills. If you need the money, you could be forced into liquidating at a loss if the market is below where you entered. Don't let this happen. Only invest money you can leave in the system for as long as it takes to make profit.
#2. 🛰️ Only Invest in Assets that Have a Long Future (10-20 years)
This isn't gambling. If you want to gamble, this set of rules isn't for you. Pick assets that you believe in--that you really believe in. Here's a way to evaluate if you are really going to stick through the hard times with your asset, answer these questions:
If you buy into this asset and within the hour the price falls 50%, would you buy twice as much over again?
If the asset tanks to near nothing, will you ride it out for years, continually investing more into it over time?
If you answer "no" to either of these questions, move on--this asset isn't worth it.If any one of my assets tanks, I'm going to buy a lot more. This isn't throwing good money after bad because I've researched my assets and I am certain that some day, even if it's 10 or 20 years from now, they will be worth more than I paid today.
#3. 📈 Only Sell for a Profit; Never Sell for a Loss
If you've lived by the first rule, this shouldn't be hard. Did you buy at a boom and now the market is half the value? Don't sell; buy more.
#4. 💵 Keep Cash for a Crash
Money in your account that is just sitting there is a waste--but money reserved in a series of Limit Orders at crash-level lows, with increasing quantity as the value nears the lowest imaginable value--that's money holding its value. So imagine you bought 100 Litecoin at $35, it's now at $45--yay, you! But you still have a bunch of cash because you were smart enough not to spend ALL of your money on investments immediately. So what do you do with your extra cash? Place your crash orders. Let's say you've looked at the chart and you think it could correct down to $28 in the next week/month/year. So place your orders down to that level. You might place orders like the following:
10 @ $33
20 @ $32
30 @ $31
40 @ $30
50 @ $29
100 @ $28
This means that as the price drops, you'll pick up more of the asset. The more it drops, the more you buy. When you go to review your investment status, update your crash catchers based on long term trends. These numbers are just samples--ranges and volumes depend on how much cash you have on hand and how deep you want to go on this asset vs. another.
#5. 🌳 Spend a Lot of Time NOT Looking at the Market
Your time is invaluable. If you are checking the market every 5 minutes (or even every hour), you are probably playing things too tightly and could get suckered into emotional investing. Emotional investing will break your rules and hurt you in the long term. Obsessively looking at the market can easily create a myopic view--always pull back and look at the big, long-term picture.
#6. 🚪Have an Exit Strategy
At some point, you have to stop putting money into your investments and start pulling money out. This is the end result of financial freedom, once your investments are producing enough growth that you can live off of them as a source of income to pay your bills. Spend some time planning your financial independence: how much cash would you need in investments for the growth of your investments to pay for your entire cost of living without you having to work for a living? This number might be frighteningly large if you've really thought it through. Consider everything you spend money on, but also think about what you want to spend money on--what is the live you want to live? This is your goal.
#7. 🚀 Be Aware of Hype
Hype moves the market--rumors create fervor and bring new interest to your asset. These are great for short term pumps--but watch out. Sometimes, news bring the asset into a new level, bringing new investors, changing the game by introducing something novel (e.g. Google deciding to offer Cloud Computing--this is a big addition to their portfolio). Do research and figure out for yourself if it's bloated hype or is something that will create new wealth in the asset over the coming years.
#9. 💸 You've Only Made a Profit When You Take Your Money OUT of the Market
Until you start withdrawing money from the market as a source of income, the money in the market is funny money. Sometimes it's up, sometimes it's down--this doesn't mean you've made or lost money. You can't calculate real profit until you pull the money out.
#10. 📉 You Haven't Lost Money Unless You Sell at a Loss
If the asset is below your cost basis, don't sell it. You got into it because you did your research and you are certain it will come back, right? When it's down, buy more. If you are trying to move that money into another asset, don't--chasing quick cash is a quick way to ditch out and miss out on good positions in your assets.
#11. 🙀 When the Market Panics/Crashes, Buy. Buy it All the Way to the Ground.
Whenever you feel like "oh, no, it might go to 0, I'd better sell now so I can exit with SOMETHING!" There are whales saying, "the closer it goes to zero, the more I'm buying."
Whales are watching for panic, then they scoop up huge volumes and cause the price to rebound. Some assets bounce like Yo-Yo toys for these investors. When in doubt, hold--and buy more when it falls.
#12. 😄 Only Sell For One of 3 Reasons:
- You are watching the charts and you see a hype bubble and you KNOW it's going to drop back down--so you are selling as a way of getting more volume (e.g. sell 100 units at $30 and buy 101 units at 27.70).
- You are completely exiting the market (rebalancing your assets)--AND it's a good time to sell because it's at an all time high
- You are now living off of your investment and are selling at high points in order to draw cash periodically
Live Strong and Hodl Long.
