Dear Retail Investors Exclusive:
3 Rules To Guarantee Your Investing Success
“The stock market is a device to transfer money from the impatient to the patient.”
– Warren Buffett
Dear Retail Investor,
You will become a much better investor in the next 13 minutes.
Your gains will be bigger.
Your losses will be fewer.
And you’ll make much better returns with less stress than you ever thought possible.
It’s all because of the rules.
Dear Retail has compiled three basics, yet unconventional rules that will make you a better, more successful investor.
Without them, the odds are stacked against you because most investors are terrible investors.
For example, more than 89% of actively managed mutual funds failed to beat the market according to mutual fund tracking firm Indexology.
In other words, nine out of every ten professional investors can’t beat the market.
Retail investors with full-time jobs and other things to do than spend 60 hours a week investing are even worse.
Simply put: The odds of successfully investing through a bull, bear, and middling markets are low.
However, that doesn’t mean it can’t be done.
It can be done.
Anyone can do it.
All you must do is follow the rules.
We’re not talking about the conventional wisdom rules that lead most investors to such poor returns.
We’re talking about the real rules tremendously successful investors who make money in stocks year after year are following.
We detailed all these rules right here because, if you’re reading this, you understand the life-changing potential that investing offers and you’re committed to being a better investor.
And I can tell you based on years of learning-the-hard-way experience, after reading this today, you’re going to well on your way to becoming a much better investor after receiving this information.
The three rules are below, but before we get to them, I want to show you why these rules are so essential.
Secret About The World’s Top Investors
The world’s greatest investors are not exceptional.
Most are not the smartest people in the world with IQ’s in the top 0.1%.
They don’t have more education than a bachelor’s degree.
They don’t have some cosmic ability to predict the future.
They don’t have access to better information (the Internet really has leveled the field).
The world’s top professional investors don’t really have any advantage over you at all.
Their only main advantage is they are exceptionally disciplined.
In other words, they follow the rules.
The world’s best investors all follow the same basic rules.
We’ve broken it down into three simple rules they all follow and rules that regular retail investors tend to break time and time again.
Each time they break them, they pay a high price.
But if you follow these rules, you will meet or exceed your investing goals easily.
And we’re going to get to them after one more thing.
Mistakes Will Cost You Your Dreams
Before we get to the rules, we want to define a word we’re going to use a lot here.
That word is mistake.
At Dear Retail, we have a specific definition of an investing “mistake.”
If a retail investor buys a stock that later declines in price, most would consider that a mistake.
That couldn’t be more wrong.
Nobody picks 100% winners all the time.
(Note: If someone tells you otherwise, or that they have a perfect system, run away — they are liars or thieves…or both!)
You will have plenty of losers.
If you’re doing this for a long time, then you will experience hundreds of them.
It’s just how things go.
That’s why you should not look at a mistake as buying a stock that goes down.
The only real mistake is doing the wrong thing and not following the rules after it goes down.
Not following the rules is the mistake, and it’s also why we’ve trimmed down the rules from some of the greatest investors in history to keep you from making the real mistakes that will prevent you from reaching your investing goals.
Here they are.
Dear Retail Investors Rule #1:
NEVER Average Down
This is absolutely the most important rule of all and its why we put it first.
“Averaging down” means buying more of a stock after its price has gone down.
For example, if you bought 100 shares of United Airlines (UAL) stock at $40 and it dropped from to $30 and you bought another 100 shares, you would now have 200 shares with an average cost of $35.
That is averaging down.
And it is without a doubt the worst possible thing to do ever.
Never average down.
Never, ever average down.
Yes, I know what you’re already saying.
“Buy on dips.”
“If you liked it at $50, you have to love it at $40.”
“Don’t frown, average down.”
I’ve heard them all many times. We all have.
They are all, without question, completely wrong.
Don’t misunderstand me. Averaging down makes sense on paper. You should like a stock that’s cheaper and the chance that it may average down.
But in the real world, averaging down is one of the easiest ways to underperform the markets in the long run.
The reason for this phenomenon is simple.
Stocks and sectors tend to move in long and sweeping cycles over long periods of time – usually multiple years.
These cycles move up and down (we’ll have more on this in the next section).
Averaging down again and again is the way to really lose big when you’re on the bad side on the bust side after boom has topped out.
It’s simple math.
Consider a 20% loss on a stock — say $1,000 has turned into $800.
For you to get back to even at $1000, you need a 25% gain on the $800.
That is doable.
But when you average down, you risk getting caught up in a stock that’s in a structural bear cycle.
If that’s the case, the risk of big losses expands and they will leave you in a spot it could take years to recover from, if ever.
Consider taking a 50% loss.
That requires a 100% return just to get there.
And if you get caught averaging down repeatedly on something and eventually lose 90%, it will take forever to get back to even.
Because a 90% loss requires a 900% gain to recover.
And there are many more 90% losses out there to be had than 900% winners.
This is all why the world’s top investors stick to the rule of never averaging down. Ever.
If you follow this rule to and do nothing else, you will instantly be a far more successful investor over time.
Dear Retail Investors Rule #2:
Stick To The Good Side Of Booms, Bubbles and Busts
“Remember that stocks are never too high for you to begin buying or too low to begin selling.”
– Reminiscences of a Stock Operator
Everything is cyclical.
Realizing this – and where your investments are on the cycle – is the key to unlocking bigger profits and much fewer losses.
As mentioned above, stocks, sectors, and markets all go through cycles.
Just look at oil cycles over the last few decades.
Boom. Bust. Boom. Bust.
No sector stays hot forever.
It’s actually impossible for any sector to do so by definition.
Because if a stock is hot, it will overheat and collapse.
That’s the cycle and it plays out over and over again.
Knowing this cycle is a key part of investing successfully.
That’s why I’ve included a chart which shows how market cycles play out:
You’ve seen this cycle many times before.
Whether it’s an individual stock, sector, or overall markets, this cycle plays out over and over again.
There are two things that are most important about this cycle:
- If you’re on the right side of it, you will make money.
- If you’re on the wrong side of it, you will lose money.
Sure, there are many more details about when to get in, when to exit, and how to know within the cycle which stage you’re at.
We’ll be following a lot of that with the much more detailed perspective of this cycle as it plays out in the main Dear Retail site.
For now, we just want to focus on the cycle.
Now that you have this chart, you can see how it has played out before for you.
Inevitably, you’ve been in all parts of this cycle.
Don’t worry, we all have.
The key is to make sure you are on the right side of it.
Because if you can do that, you will always have the wind at your back and make a lot more money from your investments over time.
As a bonus, you won’t be experiencing the costly (and emotionally crushing) slides after booms turn into busts and start to slide into full on busts.
Following this cycle will change how you look at investments forever and that’s going to add significantly to your returns over the long run.
Dear Retail Investors Rule #3:
Invest Like A Lion, Not A Shark
Shark Tank is one of the most popular shows on television today.
On an average night, up to six million viewers tune in.
It has turned its cast into a group of investing celebrities with tours, books, and all kinds of tutorials which are great starting points for new investors.
It’s teaching a lot of retail investors about how venture capital works and the importance of striking the right deal where everyone’s – investors, management, customers – interests are aligned.
But it teaches one awfully bad lesson – “Invest like a shark.”
If you want to invest successfully, you want to be more like a lion than a shark.
You see, of the deals that make it on the air in the Shark Tank show, 56% of them get completed.
In other words, more than half of these opportunities get capital from one of the sharks.
There’s a survivorship bias here in the pre-production process that regular viewers never get to see.
Those regular viewers are likely to get the wrong impression as a result and conclude a shark invests a lot.
That’s exactly the wrong thing.
Like successful hitters in baseball, successful investors pick their pitch.
The most successful investors sit and wait and only swing at the biggest, fattest pitches.
That’s why we say don’t invest like a shark, invest like a lion.
Sharks are insatiable. They never stop eating. Many of them swim for up to 50 miles a day. They only have brief periods of rest. They hunt and attack nearly anything.
That’s exactly the opposite of a lion.
A lion is a cat. It doesn’t do much. It sleeps all day. Lions sleep 15 to 20 hours a day. The rest of the time they go out and hunt and eat.
That’s why you should invest like a lion instead of a shark. Oftentimes the best move is to wait for a great idea to hit your desk. More time should be spent hunting than trading and taking action.
Less active is always better.
As you read on here with Dear Retail, you’ll see us apply this philosophy.
We could find stocks all day that are going to go up 10%, 20%, or maybe a bit more.
But once you add in the positions that go against you, you aren’t going to get far.
That’s why we will sit around and do nothing and wait for the opportunities where you can risk a little to make a lot.
Inaction is not laziness. It is tactical.
If day-to-day investing is exciting, you’re doing it wrong.
Invest like a lion instead of a shark by taking the big opportunities when they come and passing on small opportunities and wait for the big ones.
Over the long run you’ll be far better off, and you’ll enjoy investing so much more too.
Conclusion: Don’t Be Retail
These are the three simplest and most fundamental rules all investors must follow if they want to be successful over the long run.
Granted, there are times when you could get away with breaking these rules.
For example, in a raging bull market period, buying dips tend to pay off. However, what little extra return is earned will all be given back when dips are bought in a much less forgiving market.
That’s why these rules are the rules.
They are easy to follow too. But be prepared for some slips.
All of these go against what our rational minds want to do.
There will be a temptation to buy in after a stock takes a big dip or a horrible earnings announcement that sends stock down 20% in a day or some time like that.
It’s usually the wrong decision.
That’s the difference between great investors and average or worse investors.
And here’s some good news.
The more you use these rules, the easier they are to apply.
After using these tricks for a few months, you will see them pay off. Not only will you be rabidly adherent to them — you’ll also find yourself espousing them to your friends and other investors as well.
These rules are that powerful.
As you read along with Dear Retail, you’ll see how these rules are applied in real-time to make our gains big and our losses, when they do hit, as small as possible.
In the end, these rules will make your investments more profitable and prevent you from investing like a retail investor.
Don’t be retail,
Dear Retail Staff
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