The Rule #1 Strategy for Successful Investing (2024)

FAQs

The Rule #1 Strategy for Successful Investing? ›

Warren Buffett and his mentor, Ben Graham, championed Rule #1 for one fundamental reason: minimizing loss. By minimizing losses, even in subpar investments, you increase your chances of finding winning investments over time.

To guarantee good returns, you must buy a company at a price that gives you a margin of safety. For Rule One investors, 50% off of the value is the margin of safety to look for.

Warren Buffett once said, “The first rule of an investment is don't lose [money]. And the second rule of an investment is don't forget the first rule.

Rule 1: Never Lose Money

This might seem like a no-brainer because what investor sets out with the intention of losing their hard-earned cash? But, in fact, events can transpire that can cause an investor to forget this rule.

Value investing is best for investors looking to hold their securities long-term. If you're investing in value companies, it may take years (or longer) for their businesses to scale. Value investing focuses on the big picture and often attempts to approach investing with a gradual growth mindset.

Rule 1: Always Use a Trading Plan

Known as backtesting, this practice allows you to apply your trading idea using historical data and determine if it is viable. Once a plan has been developed and backtesting shows good results, the plan can be used in real trading.

They are: (1) Use specialist products; (2) Diversify manager research risk; (3) Diversify investment styles; and, (4) Rebalance to asset mix policy. All boringly straightforward and logical.

Let reality be reality. Let things flow naturally forward in whatever way they like.” Lao Tzu. The first rule in the 21 rules of life by Miyamoto Musashi is, “accept everything just the way it is”.

Rule #1 investors only invest in businesses if all five of the Big Five numbers are equal to or greater than 10 percent per year for the last 10 years.

The Magic Number: 10%

To be considered strong, all the Big Five numbers should be equal to or greater than 10% annually for the past 10 years. This consistency over a decade is a testament to a company's enduring strength.

What is Warren Buffett's golden rule? ›

Buffett's headline rule is “don't lose money” and his second rule is “don't forget rule one”. This might sound obvious. Of course, it is. But it's important to look at the message within.

Understanding the Concept of the Golden Rule. Before we dive into the details, let's first understand the concept of the golden rule of saving money. Simply put, it states that you should always save a portion of your income before spending it.

"The first rule of an investment is don't lose [money]. And the second rule of an investment is don't forget the first rule. And that's all the rules there are." This quote from legendary billionaire investor Warren Buffett has become one of his most well-known aphorisms.

Initially, the 1% rule was developed in a different real estate climate when median rents exceeded home prices. Today, the market has shifted, with home appreciation rates surpassing rent growth. Relying solely on the 1% rule can lead to inaccurate assessments of a property's potential.

If you're in the early stages of evaluating rental properties to invest in, the 1 percent rule is a quick and easy way to estimate the minimum amount you'd have to charge in rent to make a profit. Keep in mind, however, that it's just a general rule of thumb, so you shouldn't rely on it to provide a precise figure.

One popular method is the 2% Rule, which means you never put more than 2% of your account equity at risk (Table 1). For example, if you are trading a $50,000 account, and you choose a risk management stop loss of 2%, you could risk up to $1,000 on any given trade.