Investment U’s Fundamental Principles of Investing

At Investment U, we want to reveal new investment opportunities and strategies to you – every day.

But more than that, we want you to understand that all of our ideas are rooted in timeless investing principles.

Our Seven Timeless Principles of Investing can be found here. Our grounding in such timeless and proven strategies also ensures that we’re not just telling you about the latest “fad” investment… or what’s “hot” right now.

As Thomas Jefferson once said, “In matters of style, swim with current; in matters of principle, stand like a rock.”

Our goal is to provide timely investment ideas… but always ones rooted these seven timeless principles.

1. YOU CANNOT ENTRUST WALL STREET WITH YOUR FINANCIAL FUTURE

Just about every broker on Wall Street has a motive. Our investment experts have seen the machine from the inside (which is why they left). And we hate to be blunt, but the typical broker’s first motive is not making you more money. Instead, he’s likely pushing that particular investment for other reasons. Perhaps he’s been told by management what stock the “house” likes that day… Management, in turn, is taking money from that same recommended company in the form of investment-banking fees! Let alone the insane fees, the insider trading, the continuous shell games… Bottom line: You can’t trust your financial future to these guys… or their pals in Washington. Get your investment advice elsewhere.

2. DO IT YOURSELF, BUT DON’T GO IT ALONE

Clearly, no government or Wall Street firm is going to save your retirement. You’ll have to do it yourself, to some degree. That thought might scare some people, but it doesn’t have to. In fact, we created Investment U to enlighten regular investors just like you. You’ll discover how simple it can be to: ensure against big losses, first and foremost; break free from Wall Street’s “gravity field” and outmaneuver the herd; identify what really makes stocks rise, based on a few simple numbers; create a balanced portfolio that will sustain you for the rest of your life. The key is our team of four brilliant analysts – and our fiercely independent perspective. We don’t cut deals with Wall Street or Washington. We are a completely free and independent business, and that affords us the luxury of serving ONLY our readers’ interests. Your journey to financial freedom starts right here, right now, with just a few simple guidelines…

3. DON’T FOLLOW THE HERD

A contrarian investor is one who believes in profits over popular opinion. Contrarian investors are inclined to buck conventional trends – NOT follow the standard perceptions of the stock market – and think the majority of investors out there are usually wrong. A 25-year study published in 2010 in The Journal of Financial Economics found that if you had simply invested in the S&P 500 when equity fund flows were negative (redemptions exceeded new investments) and into 90-day Treasury bills when fund flows were positive (new investments exceeded redemptions) you would have substantially outperformed the market while spending nearly half the time in riskless T-bills. In other words, contrarian investing works. This system would have you do the very inverse of what the great mass of investors is doing. (It turns out they have god-awful instincts, so it pays to buck the consensus.) As Warren Buffett said, “A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful.”

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4. ALWAYS MAINTAIN YOUR BALANCE

Asset allocation is an extremely important principle to any investor. Many people are often surprised to learn that their most important investment decision is selecting the mix of assets to comprise their portfolio, not selecting the individual investments themselves. This is known as asset allocation. It is a strategy focused on how you divide your portfolio up among different uncorrelated assets like stocks and bonds.

5. NEVER LOSE YOUR SHIRT ON AN INVESTMENT – EVER

Anyone can buy a stock. The real art of investing, however, is knowing when to sell. And trailing stops can nicely remove any guesswork. Such a strategy guarantees that your profits and principal are always protected. We typically recommend running a 25% trailing stop behind any position. And a 50% trailing stop on smaller-cap stocks. Without any kind of sell strategy, emotions come into play. And emotions are almost always wrong. But by adhering to a disciplined trailing stop strategy, our investment system mows down emotion-driven trading errors like a field full of dandelions. It cures greed. Eliminates fear. And does away with wishful thinking – as in, “I hope this stock turns around and starts going the right way.” Of course, trailing stops aren’t the only sell discipline out there. But they’re one of the easiest to implement and they serve two purposes…

• They make sure we never let a small loss become an unacceptable loss.

• They keep us from selling stocks while they’re still trending up.

6. ALWAYS FOCUS ON THE FUNDAMENTALS FOR THE LONG TERM

Forget timing the market. You don’t need to worry about what the Greek central bank is doing. While maintaining an awareness of world events and trends is important, it’s no way to make day-to-day investing decisions. Instead, focus on the investment in front of you, starting with the fundamentals. We put a premium on earnings… cash flow… balance sheets… product pipeline… supply-and-demand… sound management… and a company’s position in the market. We believe that share prices follow earnings, and that you should always understand the investment – and the risks – before plunking down your money.

7. CUT YOUR FEES AND EXPENSES TO THE BARE MINIMUM

Incurring too many fees can be your portfolio’s silent killer. Given that, learning to invest your own money – and, in turn, erasing a big chunk of your fees – is a surefire way to better returns. But it’s not the fees themselves that hurt – it’s the loss of the compounded value of those fees. Without fees, a $100,000 portfolio earning 10% a year grows to $11.7 million after 50 years. Add in a 1% fee, and your ending value quickly shrinks by $4.6 million. (Only $794,000 of that difference is actually fees. The rest comes from the lost gains associated with those fees compounded over time.) In short, seemingly low fees can take a serious toll on your investment portfolio’s long-term performance. Use a 25% trailing stop to guide – and reduce the number of – your trades. And look for high-quality stocks you can hold for years.