The following axioms are my investing beliefs and various concepts I've learned regarding investing. Mosthave been learned through direct experience.

These rules are designed to be interpreted fairly narrowly. Also, a statement of the positive does not imply a statement against the inverse. For example, if a rule says to avoid a stock that has property A, the rule doesn't mean you should buy a stock that does not have property A.

• Don't recommend stocks to people. Discussion is O.K. but don't recommend. There's just no reason to do so
• Don't gamble.
• There are times when the only way to lose is not to play. Conversely, there are times when the only way to win is not to play. These are bull/bear markets. The shifting points are hard to identify and the shift points tend to be larger than the entire bull/bear period. But for those time periods where the market is clearly in one or the other you should act appropriately.
• People "talk up" what they want to be true, especially about stocks and economy. Generally, people will only see the good things about stocks they own or are considering. Try not to have blinders.
• It's too difficult to pick stocks, to have non-financial related rules limiting your choices. If a stock has moral issues you can do more to fix it from the inside anyway. As an outsider you don't have a voice. As an owner they have to listen to you.
• REIT's cause extra paperwork hassle on your tax form. Consider this before investing in one.
• There can be non-financial reasons to buy a stock. That's fine and do so if you wish but it's not investment.
• Look to Valuation of a stock. Valuation is related to the P/E but that isn't everything. Other factors include dividend, modified book value (liquid assets(cash or similar-debt).
• Consider a modified PEG. However, don't use the listed one. Make your own understanding that in most cases 2 years is the horizon on Growth. Anyone who expects growth in growth outside of 2 years is guessing. Don't trust them.
• Big name/popular stocks have a premium based on their name. This doesn't actually hurt their growth as they're likely to keep being public icons/heroes but it does increase the risk (failure gives them farther to fall) and makes them unable/unlikely to pay a quality dividend.
• People should invest in stocks for a perceived financial return. They don't but they should. This return is called a dividend. People shy away from high dividends for several reasons. One reason is a perception that a company should be using it's money to grow - this leads to companies growing badly and wastes dollars that could be returned to the shareholder. Another reason people shy away is the perception of double taxation. Slightly true but also not that significant. Many items are double taxed, arguably every dollar is taxed equal to it's multiplier. Also, the total tax is the issue and that is based on both parties combined tax rate. That might be low or high, it depends on your (and their) financial status.
• When investing for dividends make sure they can continue to pay their dividends into the far future.
• People don't evaluate "small quantities" well. Buying shortly before the dividend won't cause the stock to drop in value over time by the full dividend amount.
• Because of the above issue there is a hole in the market that a computer buying system run by a broker could possibly exploit. Buy before div-x and sell after. This might be the hole that Matt G. found for his software.
• Don't buy stocks of companies that have bad customer service.
• Don't buy "bad" (ex. dying, losing) stocks.
• Companies that are going down, they just go under. There's no salvage for the shareholders. It doesn't matter what their assets are, closing down a stock will burn up all available $$$. This is probably because the directors are working for their own short term best interests and don't have the shareholders interests in mind. So it's in their best interest to distribute company funds to themselves and their friends (co-employees.) So they'll eat through all the cash that should have been returned to the owners.
• Number #1 in an industry is good, especially if your knowledge in the industry is weak. If you know an industry then you might consider other companies but if you don't you should stay with #1 or probably stay out.
• Do write-up sheets about a stock. (See below).
• Monitor a stock based on the write-up sheet. Know how things have changed (and even occasionally update in writing the sheet.) Knowing when a stock isn't what you bought & possibly want is really important.
• Exit Conditions are key. Make them, know them follow them.
• Your advantage in picking a stock comes from a knowledge advantage that you have vs. investing market as a whole. Invest based on your knowledge. If you're investing outside of your knowledge do your homework.
• Monitor a stock for 3 days before buying it. This will help you get a feel for the stock avoid impulse buys and lots of quick mistakes.
• Stocks have an inherent advantage in growth vs. loss. On the upside you can gain many hundred %. On the down side you can lose only 100%. This is the huge advantage in long positions. Consider carefully the risk in shorts and be very, very careful in assuming a short position. Limiting this loss is a really strong argument for options.
• Options are insurance policies. Use them as such but hopefully never need to use them. If you do you might be gambling.
• Take your time after choosing a stock. After determing a quality stock consider it and watch it for at least 30 days before buying.
• Being right 3 times out of 5 is an investing genius.

Sample write-up Form.

Name

Symbol

07/05/01

Industry:

Risk:

Expected Growth:

Volatility:

Domain Expertise:

Knowledge & Information Weaknesses:

Customer Service Quality:

Personal Interactions:

Reason for buying:

Short-Term expectations:

Long-Term expectations:

Exit Conditions: