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Principle 6: Use Caution If You Are Investing in Individual Assets

If you must invest in individual assets (and this is not a given), know what you are investing in. Do your homework. Spend time learning about the company, its financial statements, its management, its short- and long-term strategies, its domestic and global industry, and its competition. Realize that it takes hours and hours of diligent, careful research to investigate a company thoroughly. Do not take others’ word for it: do the research yourself. Of course, finding a great company is not enough—the stock must also be priced right.  A great company whose stock is overpriced can still be a lousy investment.

If you do not have the time to research individual companies, invest in mutual funds that have many individual assets. If your mutual fund has ten stocks, you need to know those ten stocks well. However, if your mutual fund has five hundred or more stocks, you do not need to know those five hundred stocks well because each stock has such a small impact on your total portfolio.

Know who you are investing with. Make sure you invest with mutual fund companies that have built a tradition of meeting the needs of their investors. Work with good companies that have good products. Be very careful with your money and invest it wisely.


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