Understanding these rules makes it easier to invest with confidence – not being daunted by market uncertainty nor being tempted to seek safety in the herd behavior of other investors.
None of us can predict what stock markets will do next, but by being informed and then investing for the right reasons, we can move the odds further in our favor.
Rule #1: Pay close attention to the treatment of minority shareholders.
– An independent board of directors is one of the key elements to ensure fair treatment of minority shareholders.
– Conflicts of interest is not limited to Asia and Emerging Markets.
– Investors need to do their homework and to understand the background and track record of a company.
Rule #2: Companies are about people not assets
– Is the management team competent, objective and trustworthy?
– Does the CEO hold too much power?
– Does the company value its staff and promote good company culture?
Rule #3: Balance sheet strength is critical
– Does a company’s balance sheet fully reflect its financial health?
– Is the business model and structure too complicated?
– Has the company spent its cash flow effectively?
Rule #4: Understand what you are buying
– Before investing, one should understand the company fundamentals and operation model.
– Try to resist being over-confident and keep investment boom in perspective.
– Simple business and companies with natural monopolies are usually the most preferred.
Rule #5: Be wary of over-ambition
– Local successful story does not necessarily translate to overseas.
– Companies who are overambitious in expansion may end up with operations failure.
– Firms that focus on their core business are worth for investing.
Rule #6: Think long term
– Investors should establish a long-term investment thinking and avoid short-term speculation.
– Short-term volatility are mostly irrational.
– It’s important to assess a company’s long-term outlook.
Rule #7: Benchmarks are measuring devices
– The biggest risk in investment is following the herd.
– Benchmark cannot fully reflect a holistic market prospects and opportunities.
– Investors have to adjust their strategies from time to time and develop their own investment philosophy.
Rule #8: Take advantage of irrational behavior
– Take advantage of others’ seeming irrationality.
– Riding with the tides and follow others blindly are the most dangerous investment behavior.
– Investors should stay calm and be rational at all time.
Rule #9: Do your own research
– Be accountable for own investment decisions based on research.
– Never allow blind faith to replace thorough research into a potential investment.
– Long term performance can only be achieved when investors are willing to do things differently, and on their own terms.
Rule #10: Focus on industries in which it is possible to have a sustainable competitive advantage
– A higher set up cost is one of the competitive advantages for business to remain sustainable.
– A trustworthy brand is more resilient to competitor’s challenge.
– Make sure your investment targets embrace competitive edge in their industries and markets.
(Source: Aberdeen Asset Management)