Rule #1: Select Winning Stocks The Way You Buy Groceries (And...

Rule #1: Select Winning Stocks The Way You Buy Groceries (And NOT The Way You Choose Perfume) There are really only two approaches you can take when you’re investing in a stock. One is similar to buying perfume. Let’s call it the speculative approach... This is the approach you need to avoid. If you pay $80 for a bottle of perfume, you’re paying for perceived quality. You can’t measure it in terms of real value. You can’t really tell why one type of perfume costs $350 and another — which smells exactly like it — goes for around $150. If you live for the thrill of taking a chance on a stock with a good story — in the hope it will double or triple your money very quickly — you might be attracted to this exciting but risky way of investing. But it’s really gambling. The way to build long term wealth is through value investing like Warren Buffett. Like a good supermarket shopper, it means you’ll look at all the stock on the shelf, sum up the prices, compare the quality and work out which gives you the most bang for your buck. It’s not just about buying bargains. It’s about getting the best quality for the best price. When you’re thinking of investing, you need to approach every stock purchase as if it was an item you were about to drop it in your supermarket trolley. You know your favourite brands and items in your weekly shop. Make sure you know and trust the companies you’re investing in the same way. You have to make sensible, rational investment decisions based on your knowledge 4 of the company’s value. As an intelligent investor, you need to base your buying and selling decisions on sound evidence. That means understanding the financial fundamentals and the outlook for the business. Speculation can have its place in a portfolio, but do you really want to gamble with the money you need for your retirement?

Getting back to basics.