Adam's Rules for Investing

Dec 1, 2006 by

What to Buy

-Under no circumstances will I buy a stock, or any instrument whose price can be influenced by a small group of individuals. Thus, I do not invest in anything related to petroleum, as I feel that OPEC has too much control over the price.

-I take systemic risks, not individual risks. If I wanted to invest in the shipping industry, I would invest in IYT (The Dow Jones Transportation Average), not FedEx or UPS. The Dow Jones Transportation Average contains shares of both FedEx (11.46%) and UPS (7.38%). As these two services are somewhat substitutes for each other, one’s loss will be the other’s gain, assuming that the overall amount of shipping remains constant. Thus, I am only betting on the overall success of the transportation industry, not the success of one company. Likewise, if one company lost marketshare due to illicit activities, that marketshare would be captured by something else in the fund, reducing my financial loss.

-In the long-run, I think America will not be the market leader. I invest accordingly, and keep no more than half of my invested money in American assets.

When to Buy

-I buy when I feel that the price has dropped, but the going concern (the ability of the underlying assets to increase their earnings) has not changed.

-I believe that the majority of people are risk-averse and sell quickly after averse geopolitical events. So long as the event does not negatively affect the going concern, I buy during times of mass-hysteria. The coup in Thailand… the missile testing in North Korea… these were substantial opportunities for investing in burgeoning economies at depressed prices.

-I don’t buy anything when it is at its 52-week high. It might keep on climbing, but I would rather invest in something else.

-I don’t buy anything that has had a net negative return over the course of the previous twelve months.

When to Sell

-I sell when an asset has recently reached a 52-week high, but has had a slight negative correction sustained over the course of a week.

-If I don’t think an asset will move much, and I have held it for a long time, I try to hold it for a year to avoid short-term capital gains taxes.

-If an asset has not performed, or has had negative performance, I set a sell price just high enough to cover the cost of the commissions.

What to Do with Proceeds

-I take the proceeds from my investments and hold them, waiting for another “buying opportunity”

-I keep proceeds liquid, as I will need to quickly reinvest them when the next adverse geopolitical event strikes

-I watch a handful of ETFs on a daily basis, so that I am familiar with their historical performance and their covariance. That way, I know about them when it comes time to invest.

Some readers may see this as crazy, as my strategy only barely looks at historical performance, and rather ignores analysts. I think that analysts play a valuable role in predicting the future. However, by the time I read their reports, I feel that the “future” has already accounted for their recommendations. Predictions and projections would be useful to me if I was among the first to read them. As a personal investor, I simply cannot respond fast enough for present projections not to be stale.

Likewise, I do not invest in individual companies because I do not have any access to information that is not priced into the current share price. The premise that people do not trade on insider information is patently false. Prices move before big announcements on a routine basis. Furthermore, people within one company can use their “insider information” to legally make investments in other companies, as doing so is legally considered mere speculation. If I think my company is going to lose the race, I can legally buy shares of my competitor. As most major companies contain thousands of employees, this form of insider information is heavily factored into the prevailing prices in the market.

What is your investment strategy?


  1. mturker

    My strategy for investments is simple and safe. In a nutshell, it’s shop around for certificates of deposit with a term of one to three years and buy them so that they come due about every three to six months. Over the past 25 years, I’ve realized an annual return of 6 percent per year using this method. I remember the late 1990’s when everybody was putting money into the stock market and thinking it would go up forever. Well, when it crashed, they lost half their money. What did the lucky ones end up making overall? About 6 percent. So they took on risk for no reward. The people who really make money on the market are insiders and arbitrage traders. Don’t be foolish and invest there unless you’re a pro. Real estate investments are similar to the stock market. Eventually, the music will end, the real estate market will run out of fools, and the suckers will be left without chairs. Go for slow, safe, and steady. You’ll sleep well at night and be happy in the end. By the way, if you want to buy CD’s, there can be differences in yields of a percent or two between different banks. It pays to shop around. Google for best CD rates on the net to find the banks that pay the highest interest.

  2. Pat (mturker)

    What do I buy?
    I tend to stick with tech stocks because I know them best. For example, I have recently invested in shares of Google (GOOG) because I use Google several times a day. I also have an iPod and know lots of people with an iPod. I am familiar with most of Apple’s products and I see huge upside potential, even though it has already eclipsed its previous 52 wk. high. Basically, I buy what I know. I have made speculative plays with companies that I knew very little about and have ended up “in the House of Pain” as result.

    When do I buy?
    I buy when the market beats a stock that I like and am familiar with for the wrong reasoning. If I think the drop in price is the result of a sell-off (for one reason or another) I will look into why there was a sell-off. If the sell-off has little to do with the way the company is running its business I use the setback as a chance to buy in.

    When do I sell?
    I hold for the long-term and thus do not sell often. Sometimes I will sell if I think the company’s values have gone awry or if I see a big decline coming in the sector. Other times I will sell near a 52 wk. high and buy back in on a small correction.

    What do I do with the proceeds from sales?
    I reinvest them because I like to make my money work for me. I have plans of one day starting my own venture and I need all the funding I can get.

  3. Scott

    What do you buy?
    I buy index mutual funds to keep fees and costs low. They also keep taxable activity to a minimum. I also buy technology mutual funds and financial services mutual funds. I do not buy individual stocks, annuities, or bonds. I keep cash in CD’s and savings accounts.

    When do you buy?
    I buy shares throughout the year, by dollar cost averaging. Once a month I will put money into my mutual funds based on how much cash I have on hand and what the current net asset value is. If the shares are “on sale”, I will buy more that particular month.

    When do you sell?
    I invest for the long term and will only sell when I think the fund has peaked and is headed in the wrong direction.

    What do you do with the proceeds from sales?
    I reinvest them. I use them to look for the next solid investment that will get a good return for the same amount of risk as the fund that the money came out of.


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