Investing is not easy – every successful investor has a strategy and rules they follow in order to try to minimize the risks and maximize the profits. Here are some rules to follow, based on the advice from Warren Buffett and Steve Anderson (Baseline Ventures).
- Start early – developing smart investing habits now vs. later in life pays out exponentially in the future because of the “magic” of compounding returns.
- Be willing to be different – “you follow the herd, you’re gonna get hurt”.
- Don’t be afraid to risk – one of the biggest mistakes young investors make is allocating too much of their investments in cash or bonds.
- In you don’t understand it, don’t invest in it – complex deal terms, business model you don’t understand, etc. – avoid it.
- Never suck your thumb – if you find something good, take action, don’t sit around waiting.
- Explore the employer’s stock – if you can get stock in your company subsidized, you might want to consider investing some money there.
- Spell out the deal before you start – get all the details in writing before you follow through.
- Watch small expenses – do not waste money.
- Limit what you borrow – use debt as a tool and use it wisely.
- Be persistent – always remember the saying: “If at first you don’t succeed, try, try again.”
- Think long-term – you don’t need to check your investments every week, a quarterly checkup is enough – focus on the long term.
- Max out retirement plans – if your employer matches retirement funds by all means take advantage of it.
- When investing in business, look for founders who are thoughtful, but then make forceful decisions – because few people get their idea exactly right on the first try.
- Build a good network of connections – for deal flow, co-investing, experience exchange and follow on investment strategy.
- Know when to quit – including shutting down a failing company.
- Assess the risks – do the worst-case-scenario analysis before you proceed.
- Know what success really means – it is not all about the money.
- Reinvest your profits – take advantage of compound growth, which is money growing on money.
“Never depend on single income. Make investment to create a second source.” – Warren Buffett