The Ten Commandments

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Ten Commandments for any new investor.

A distillation of forty years of handling private clients:

1. Don't be a moron

A lot of you are invested in the Moron Portfolio (BHP, RIO, NAB, CBA, ANZ, WBC, TLS, WES, WOW, MQG, WDS....spotted yourself yet?). The Moron Portfolio is so 1980's. It is out of date. These days you can achieve a market return (the same return or better) with ETFs that compound the dividends with one investment and none of the admin. STW will compound dividends in the ASX 200 for you. Why are you bothering with individual stocks if all you are doing is buying the big ones? You can also "Time the Market" using an ETF. And once you start doing that you realise you can buy the US market instead (more growth). Or Europe. Or all the other things ETFs give you access to on an Australian-listed trading platform. Being invested in large Australian stocks is a modern day backwater.

2. Become the 0.00001%

Spend one hour doing work on a stock and you will end up in the top 1% of people that know anything about it. Do ten hours work and you end up in the top 0.00001% of people that know anything about it. If you follow and trade the same stock regularly you develop an edge on timing. You make the most money in the most risky stocks. You can easily reduce that risk. Become the 0.00001%.

3. Exploit the herd

There is no transformation from being part of the herd. Watch the herd don't join the herd. Avoid the corrections. Welcome the corrections. Exploit the corrections. Armageddon is opportunity. Learn to spot stocks in sentiment holes and sentiment bubbles. Exploit that. Exploit the herd. There is nothing more glorious in the stock market than watching the herd doing 200 miles a hour with its hair on fire. That's where the extremes appear. You just have to spot the turn.

4. No emotions

Be Spock. Logical, cold, decisive. Getting excited or upset is never going to help you make good decisions. If you can't be Spock and you are lying in bed at night awake because of the stock market, sell. Have a think. Then decide what to do. Cash is very powerful. You go from fearing a loss to hoping everything crashes. You should try it. If in doubt, get out.

5. Network

Ten ears are better than two. Expand your group of investing friends, even the dull and ignorant have their stories, you only need one or two ideas a year and so what if you waste a few hours over a bottle of wine listening to fools - it can still be quite pleasant.

6. Use everything

Use fundamental research and technical trading skills. Share prices are half psychology (technical) and half value (fundamental), not 100% of one or the other.

7. Don’t make mistakes

You cannot transform yourself with good stocks if bad stocks are constantly chopping you down. Controlling losses is easy because they are right there in front of you on your spreadsheet. Sort them out first. I don’t believe that technical analysis will make you rich alone but it is a tremendous risk management system. A share price is not a line on a chart, that line is the representation of thousands of people saying “You’re right” or “You’re wrong”. That’s a useful piece of information. So listen. And when they start telling you you’re wrong, don’t be smart.

8. It’s about stock prices not businesses

There is a dangerous quote - the market is a voting machine in the short term but in the long run, it is a weighing machine. The moment someone quotes that, you know they know nothing about the stock market and are a victim of finance industry brainwashing. Your money is not invested in a business, it is invested in a companies share price which is in the hands of the herd. Which can be pretty brainless for long periods of time. Do not put your faith in the long term. It's a fallacy they want you to believe so you just buy (their products, funds, advice), and never sell.

9. No ego

There is no-one that good at investing. No-one that cannot learn something new. You will change your methods many times before the end so be flexible, respectful, open-minded, humble. Arrogance and ignorance go hand in hand in the stock market.

10. Enjoy it 

No-one does anything well when they have to.

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