“The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The Intelligent Investor is a realist who sells to optimists and buys from pessimists.”
There is only one requirement. You have to know when stocks are too expensive or too cheap.
Investing and using money later has guidelines
Lesson #1. Be patient. Much of the time the market isn’t so expensive you should sell. Don’t forget taxes. Even more of the time it is not cheap enough to buy.
Lesson #2. Be objective. If you don’t know what you are doing or if you are bored it is easy enough to buy a story about why such and such a stock is cheap. If you are in it for the action, stop and rethink.
Lesson #3. Know why you invest at all. Investing is a time machine. It takes money you have now and moves it to the future for use then. If you know how much you need and when, you can come up with your “Goldilocks Yield Requirement.” The yield that gets you what you want or need. Why take risks to get a lot more? Having enough is success.
Lesson #4. There is more to it than yield. You cannot invest what you don’t save. Saving and investing and debt management are all the same thing. Balance time and earning ability and lifestyle so life is consistent with the things you want. Know what you want first.
Lesson #5. Adaptation is the great skill. Your projection of the future only holds as long as the circumstances and rules remain the same. They won’t. Be curious. Don’t be so in love with your plan that you would not be willing to accept something better.
Lesson #6. Investment risk is merely not knowing how much will be there at any point in the future. You defend that by not needing all the money at such a point. Liquidity is a certain defense to volatility.
Lesson #7 Catastrophic risk is different. It relies on some unaffordable event causing harm. A fire, a disability, a death. Insurance has solved these risks for centuries. Learn how to pool risk so you are at worst, out only the premium. Underinsured just means someone will be insurance poor when they can’t afford to be.
Lesson # 8. The money can’t tell where it came from. Learn that income and cash flow are only a little related. The ideal is to have cash flow with no income. It’s taxable, right? There are ways to do that. You should plan to use them.
Lesson #9. Using money is a zero-sum game at first. Once you use a dollar it is gone forever. You can choose ways to use it to improve your life though. The dollar invested in education can return value many times greater. Learn to exchange value for more value.
Lesson #10. Tools are distilled experience. Learn about financial tools and techniques. No point reinventing things that exist. Only amateurs learn exclusively from their own experience.
It’s mostly common sense.
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