Stock Investing Principles

In our last newsletter, Do you want to appear smart or build wealth?, I shared how I, and many here at TIP, believe in Buffett’s and Pabrai‘s strategy of being a “shameless cloner”. 

In William Green‘s book Richer, Wiser, Happier, he wrote, “Pabrai’s success both as an investor and a philanthropist is built entirely on smart ideas that he has borrowed from others.” Pabrai has openly admitted, “I’m a shameless copycat. Everything in my life is cloned … I have no original ideas.”

With that said, you can probably imagine that my investing principles aren’t ones I’ve created myself.

I’ve collected the best of what I’ve learned from other successful investors and added them as my own investing principles to follow.

I’ve cloned ones that speak to me.

I want to share those investing principles with you today.

The list below is not complete.

I’m not sure my list of investing principles will ever be complete. 

My principles, philosophy, and strategy are ever-evolving.

It is possible, and likely, that I will find a new principle to clone tomorrow from another successful investor, at which point this list will grow, or change.

As of today, my stock investing principles are as follows:

1. If I don’t have an edge, I don’t play.
2. You should buy a stock only when it’s selling for much less than your conservative estimate of its worth. It doesn’t take an elaborate Excel spreadsheet to see it’s undervalued.
3. Do not trade for the sake of trading. Investing is mostly a matter of waiting for rare moments when the odds of making money vastly outweigh the odds of losing it. Be patient and selective, saying no to almost everything.
4. Fish where there are fish, but few fishermen.
5. The company must be within my circle of competence. Avoid anything that is too hard.
6. Buy good businesses, not merely cheap stocks.
7. Exploit the market’s bipolar mood swings.
8. Make a small number of mispriced bets with minimal downside and significant upside.

I mentioned above that many of these principles have come from superinvestors such as Buffett, Munger, and Pabrai. However, even for them, many of these principles are not original — they have cloned ideas from other investors and authors.

When I spoke with Dr. Robert Cialdini, he mentioned to me that Warren Buffett and Charlie Munger told him they use so much from his book (clone…), they ranked it as the #3 and #1 best business book of all-time, respectively.

If you’d like to see the video version of my recent podcast episode with Dr. Robert Cialdini, you can find it here. 

Dr. Cialdini’s episode is part of our increased focus on YouTube. As a whole, The Investor’s Podcast Network has started releasing all of our podcast episodes on YouTube, as well as additional free content. Stig and Trey just launched their first video version of the We Study Billionaires podcast with Cade Metz. You can subscribe to TIP’s YouTube channel and find the video versions of our podcasts here.

– – –

Sponsored by VantagePoint: