Unit 1 Lesson 4: The Seven Golden Rules of Investing

Lesson 4:

The Seven Golden Rules of Investing

By Nicholas Murja

Open Ended

Review from lesson 3: What are the characteristics of superinvestors?

Open Ended

Characteristics: (1)They are not influenced by the herd (2)They do their research. (3)They have a consistent and rational approach.

Keeping these in mind, write one rule you will have for investing:

Open Ended

A successful football player follows certain rules and so do successful students. Investing in the stock market is no different, except you stand to make a lot of money if you follow the rules. Just like Warren Buffet and other Superinvestors.

How does your rule ensure success?

Seven Golden Rules

​To help us invest using the patters of most successful investors, the Young Investors Society has created "Seven golden Rules."

RULE #1: THINK LONG-TERM

Teaching the rules:

Break up into 7 groups and come up with a plan to teach the other groups your rule. There is more information on the handout I will provide.

RULE #2: GOOD COMPANIES MAKE GOOD INVESTMENTS

RULE #3: BUY WITH A MARGIN OF SAFETY

RULE #4: DO YOU OWN HOMEWORK AND OWN WHAT YOU KNOW

RULE #5: DON'T FOLLOW THE HERD, STAY CALM AND RATIONAL

RULE #6: DON'T PUT ALL YOUR EGGS IN ONE BASKET, BUT DON'T HAVE TOO MANY BASKETS, EITHER

RULE #7: NEVER STOP LEARNING

Group 1

RULE #1: THINK LONG-TERM​

Make sure you take notes!

Multiple Choice

Select the answer that most identifies with rule number 1:

• Timing the market beats Time in the market

• Time in the market beats timing the market

• Watch out for the short term!

Group 2

RULE #2: GOOD COMPANIES MAKE GOOD INVESTMENTS (DITTO FOR BAD COMPANIES)​

Make sure you take notes!

Multiple Choice

Which of these does not identify a "good" company?

• Good companies are ones that have a unique advantage that others can't copy

• Good companies are ones that generate high returns on capital

• Good companies don't need to borrow a lot because their business is self financing

• Good companies are the ones whose stock price is going up the most right now

Group 3

RULE #3: BUY WITH A MARGIN OF SAFETY​

Make sure you take notes!

Multiple Choice

Which matches a purchase that has a "margin of safety?"

• price that is low enough that your assessment could be completely wrong and you wouldn't lose much

• A price that is below the actual value of the company

• A price that is above the value of the company

• The current price of the company

Group 4

RULE #4: DO YOUR OWN HOMEWORK AND OWN WHAT YOU KNOW​

Make sure you take notes!

Multiple Choice

Which statement best fits the rule?

• go the extra mile to analyze the financials of the company to make sure they're not missing anything

• They buy stocks of companies with products they believe in

• Buy stocks because CNBC recommended it

• Buy stocks because your super smart uncle recommended it

Group 5

RULE #5: DON'T FOLLOW THE HERD, STAY CALM AND RATIONAL​

Make sure you take notes!

Multiple Choice

Smart investors:

• buy when others are buying

• sell when others are selling

• fight the urge to follow and remain calm through a storm

Group 6

RULE #6: DON'T PUT ALL YOUR EGGS IN ONE BASKET, BUT DON'T HAVE TOO MANY BASKETS, EITHER​

Make sure you take notes!

Multiple Choice

Research suggests that 90% of diversification benefits can be obtained in most markets with a portfolio of just over HOW MANY stocks. The more you diversify beyond that, the less you know about each investment.

• 20

• 15

• 10

• 5

Group 7

RULE #7: NEVER STOP LEARNING​

Make sure you take notes!

Multiple Choice

Why should you never stop learning?

• markets are always different and companies are constantly changing

• Stocks work differently each year

• You need to change your strategy every so often

Let's use the 7 rules to make some investing decisions