Eight Keys for Success: The Investment Plan
Bottom Line: As part of my annual series, Eight Keys for Success, here’s my Investment Plan...
Most people who’re inclined to invest on their own tend to have reasons why they’re investing but not reasons for selling. My approach is simple, at least to explain. The reasons you invest should be the reasons you sell. Here’s how it works.
Prior to making an investment establish a minimum of three concrete reasons for entering into an investment. I’ll give you three basic questions one might use for conservative stock market-based investing for example.
- Does the company have more cash than debt?
- Is the company growing revenue year-over-year?
- Is the company paying a dividend that’s stable or growing?
By illustrating the reasons why one enters an investment, it also provides a roadmap to exit an investment. In this example, if two of those three reasons for originally investing were to change for the negative, I would sell. It takes all emotion out of the process and provides specific guidance for sound investing and selling. But the importance of establishing at least three reasons is to also ensure you’re making an informed decision. If, for example, you were to consider making an investment simply because you believe whatever you’re considering will move higher in price – you're simply hoping to get lucky. Hope and luck are reasons people buy lottery tickets and gamble. They aren’t viable investment strategies. Applying this basic principle will help you ensure you’ve done at least a minimal amount of due diligence prior to opening an investment.