Jason Zweig’s Rules for Investing

Coming up this week for our Masters in Business podcast, I am sitting down for a conversation with Jason Zweig.

One of my favorite books of his is Your Money & Your Brain. Buried within its appendix is a great list of common sense rules that are commonly ignored. Perhaps I can find a few questions here to go over this with him.

 

Jason Zweig’s Rules for Investing

1. Take the Global View: Use a spreadsheet to track your total net worth — not day-to-day price fluctuations.

2. Hope for the best, but expect the worst: Brace for disaster via diversification and learning market history. Expect good investments to do poorly from time to time. Don’t allow temporary under-performance or disaster to cause you to panic.

3. Investigate, then invest: Study companies’ financial statement, mutual funds’ prospectus, and advisors’ background. Do your homework!

4. Never say always: Never put more than 10% of your net worth into any one investment.

5. Know what you don’t know: Don’t believe you know everything. Look across different time periods; ask what might make an investment go down.

6. The past is not prologue: Investors buy low sell high! They don’t buy something merely because it is trending higher.

7. Weigh what they say: Ask any forecaster for their complete track record of predictions. Before deploying a strategy, gather objective evidence of its performance.

8. If it sounds too good to be true, it probably is: High Return + Low Risk + Short Time = Fraud.

9. Costs are killers: Trading costs can equal 1%; Mutual fund fees are another 1-2%; If middlemen take 3-5% of your cash, its a huge drag on returns.

10. Eggs go splat: Never put all your eggs in one basket; diversify across U.S., Foreign stocks, bonds and cash. Never fill your 401(k) with employee company stock.

 

Great stuff!

What's been said:

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  1. foosion commented on Sep 7

    >>Never put more than 10% of your net worth into any one investment.>>

    Jack Bogle recommends some very simple portfolios, such as 60% US total stock market plus 40% US total bond market (vary percentages based on age and risk tolerance). Perhaps add an international index or use another bond fund. Warren Buffett is reported to be recommending 90% S&P 500, 10% treasuries for his wife when he dies.

    Would a broad index fund count as one investment for Zweig’s 10% rule? If so, Bogle and Buffett would violate his rule.

    • Liquidity Trader commented on Sep 7

      Since the total US stock market is an asset class that = 5000 companies, I would say no

    • Molesworth commented on Sep 7

      But that should be made clear in the “rules.”

  2. VennData commented on Sep 7

    I think you’ll find many folk’s mortgages are larger than ten percent. Now a mortgage is a liability, not an asset, but it is a bet, on rates, you region,your neighborhood, and often people buy insurance on it.

    A mortgage us part of a levered bet. Choose your dwelling wisely.

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