While I don't yet have the 10 or 20 years of investing experience to be considered an 'expert', I study on a daily basis the investing techniques and rules used by the most successful investors of the last 50 to 100 years.
Fantastic books like Peter Lynch's 'Beating the Street', anything by Robert Kyosaki and Napoleon Hill, and of course any of the tomes written on or by Warren Buffett are a great place to start for new investors.
What about the 'New Normal'
The 'new normal' has been a favourite catchcry of the media over the last five years as the dust from the GFC settled. Ultra-low interest rates, soaring stock markets, and money printing by governments worldwide, things that economic historians have no data on, prompted market commentators to speculate that there won't be a return to more 'normal' conditions.
Interestingly, most of the incredibly successful investors above have remained steadfast in their belief that buying great companies at great prices will remain a winning strategy going forward! Sound familiar?
3 Investing rules
1. Don't follow the hot stock pick
While our brand new investment report below might allude to it being the hot stock pick, it's actually just a company that we really love because it offers great value at the current price. There are hundreds, if not thousands of examples of why you shouldn't follow the current hot stock. One close to Australian hearts is the monumental rise, and then fall, of Lynas Corporation Limited (ASX: LYC) during 2010 and 2011. Without earnings to its name, following the rise from $0.13 to $2.50 was purely speculative!
2. Invest in companies with a strong history and future
Companies come and go. Only the strongest consistently grow profits for shareholders, and can continue to do so in the future. Use the 2000 dot-com boom as an example; companies that were seemingly everywhere – think Myspace – have now faded into the distance, but strong companies with long histories, such as Brambles Limited (ASX: BXB), Telstra Corporation Ltd (ASX: TLS) and Woolworths Limited (ASX: WOW) are still going strong.
3. Buy when the price is right
Every investor should teach themselves how to value a company based on its current and future earnings. This allows us to take advantage of gyrations in the market that present us with great buying opportunities. Take ResMed Inc. (CHESS) (ASX: RMD) or McMillan Shakespeare Limited (ASX: MMS) for instance. Their share prices dropped due to announcements that appeared to be a negative for their business, however investors that had a deep understanding of the business model used the dip as an opportunity to buy up!
