The Seven Immutable Laws of Investing

I have been meaning to write on this subject since I read this article a few weeks ago and today I finally got around to actually write about it.

This article summarises the seven laws of investing that every investor must follow and I personally believe in and advise investors accordingly.

Investors and financial advisors do get swayed by the fact that returns in USD terms are low so leverage could be a good idea or that unending search for higher return which makes investors believe that a poorly performing company when offering higher yield is a good idea.

We have seen recently that Greece, Portugal and Ireland who have received ‘bail outs’ not defaults, lol, have been giving enormously high yields of upto 10 to 12% on their USD bonds. Their bond curves have shot up just prior to the impending defaults, oops, bailouts. Good returns necessarily do not imply good investment ideas and can deplete your capital in a very short period of time.

These 7 laws of investing can actually guide to make safe investments and help understand that equity investing or bond investing or any investment for that matter can be made using these principles.

Please do take out time to read these important thoughts.

The headline ideas are:

1. Always insist on a margin of safety

2. This time is never different

3. Be patient and wait for the fat pitch

4. Be contrarian

5. Risk is the permanent loss of capital, never a number

6. Be leery of leverage

7. Never invest in something you don’t understand

This article is written by James Montier who was the co-head of Strategy with Societe Generale Bank before moving to GMO LLC, an investment advisory firm in USA, in 2010.

The Seven Immutable Laws of Investing

James Montier - Published 8/03/2011