Facebook Twitter



There are three ways to learn the important investing lessons, says No-Load Fund Analyst newsletter (300 Montgomery St., Suite 621, San Francisco, CA 94104).

"The first is to make your own mistakes. The second is to observe the mistakes of others. The third is to figure out what the mistakes are before you make them."In a helpful report called "Investment Lessons From the Front Lines," No-Load Fund Analyst has distilled everything it has learned from its own mistakes, and others', into 12 brief rules of investing.

1. BE PATIENT WITH GREAT FUND MANAGERS. "Even good managers occasionally have bad years," says No-Load Fund Analyst. "Unless there's clear evidence that something fundamental has changed, it pays to be patient with proven managers."

2. THERE'S NO SINGLE CORRECT APPROACH TO INVESTING. "Different approaches work. Whatever their approach, good managers who maintain their focus and stick to their investment discipline make money over the long run."

3. BE WARY OF ATTRIBUTING TOO MUCH TO SHORT-TERM PERFORMANCE. "Mov-ing into a new, hot fund sounds good, but it's largely wishful thinking.

4. RECOGNIZE THE BENEFITS OF DIVERSIFICATION. "We all wish that all our investments would go up all the time, but that just isn't reality," continues NLFA. "Remember that this year's losers are often next year's winners."

5. LEARN FROM HISTORY, BUT ALSO UNDERSTAND THAT HISTORY DOESN'T ALWAYS REPEAT. "Every economic cycle plays out a bit differently."

6. DON'T LET THE RECENT PAST WEIGH TOO HEAVILY ON YOUR DECISION. This is one of the most difficult lessons to remember, says NLFA.

7. THINK LIKE A CON-TRA-RIAN, BUT DON'T ALWAYS ACT LIKE ONE. "It's important to understand why a price is low. The real issue is whether the decline was driven by sentiment or by a true change in the fundamentals."

8. BE WILLING TO MAKE MISTAKES. "Great investors are never paralyzed by the fear of being wrong. "

9. DON'T BE AFRAID TO CONCENTRATE INVESTMENTS WHEN CONVICTION IS HIGH. "The idea is to take a big enough position to make a difference if you're right, but not big enough to kill the portfolio if you're wrong."

10. DON'T BE TOO INFLUENCED BY SHORT-TERM PREDICTIONS. "Analysts who are most certain about their short-term predictions are often only interested in self-promotion."

11. BE PATIENT. "Over the long term, fundamentals usually win out. For this reason, we believe successful asset allocation must be based on a period long enough to allow the fundamentals to be reflected in returns. Three years is a long enough period."

12. BE WILLING TO CHANGE YOUR MIND. "As an investor, you will make mistakes," concludes NLFA. "When you recognize one, admit it and move on."