When it comes to investments, most people can’t help themselves from doing exactly the opposite of what they should do.

Take the golden rule, for example: buy low, sell high. Sounds obvious, doesn’t it? And it is. But almost nobody does it. When a stock or the market is going gangbusters, they jump on the bandwagon. When it crashes, they panic and sell. It’s human nature.

Successful investing is all about one word: discipline. Here’s some more ridiculously obvious investment advice that almost nobody follows:

Don’t do anything stupid. Everyone who does something remarkably stupid and loses their shirt says the same thing afterwards: I knew it was stupid, but …

Diversify. Don’t put all your eggs in one basket. It’s one of the first lessons we learn as kids. Do we listen? Nope. Hedging has a bad rap. Too bad. Mark Cuban didn’t make his billions selling broadcast.com to Yahoo, but by hedging against a market crash immediately after the acquisition … right before the dot-com bubble burst.

Don’t get emotional about it. If you love a stock, that spells trouble.

Remember you have to buy and sell. Some people are great at calling stocks to buy, but when it comes to selling, they say I’ll just watch it like a hawk. And they do … all the way down. Unless you’re Warren Buffet, you also need an exit plan for your holdings.

Past performance is no guarantee of future results. One of the most fundamental rules of the universe. Goes way beyond investing. Don’t let success go to your head. The same goes for whoever advises you.

Come up with a long-term strategy based on your goals and risk tolerance and stick with it over the long haul. Duh.

Watch the incentives. If you pay someone to manage your money, pay attention to how they’re incentivized. People do what they’re incentivized to do. Not that you’re ever going to get anyone to manage your money for free, except you, of course. It’s just something to be aware of.

Day trading. Yuk. Don’t even get me started. Just don’t do it.

As I like to say, this isn’t rocket science, folks. If you’re young and dumb, it’s OK to screw up and learn your lessons. I sure was and did. But I know plenty of people older than me who are still screwing up. That’s just plain dumb.

Image credit Rafael Matsunaga via Flickr

  • SamHanson

    Thank you, that was a good read. I made a Disqus account just for this website.

    • Steve Tobak

      Cool!