12 Irrefutable Principles of Investing

Updated: May 10, 2022

In my opinion, one of the best investing mentors that I have today is Sir Rex Mendoza, the President & CEO of Rampver Financials.

He has so much experience in the Philippine market, that I am always excited to learn from him whenever he gives a talk during IMG Conventions.

Today, I’m sharing with you his 12 Irrefutable Principles of Investing, and why it’s important to remember them especially during these uncertain times.

1. An investment is a commitment of funds made with an expectation of a positive rate of return.

Simply put, an investment will make you money. This seems common sense, but I’ve met people buying condominiums where they don’t have plans of selling for profit, nor do they have plans of having it rented out.

Those purchases are not investments, they are simply assets.

2. Start early.

Time is on your side and it becomes your ally when you start investing early. Just read this story of Mr. Invest Now, Mr. Catch Up and Mr. Wait Longer.

3. There is no such thing as “the best investment instrument”.

Just like musical instruments, it’s silly to compare each one and say which one is the best. That would always depend on the person and their musical preferences.

In investing, every person has their own financial goals, and the best investment instrument for them will be the one that will help them achieve those personal goals; and what’s best for them may not be the best for you or me.

4. The higher the risk, the higher the return and vice versa.

It pays to know this principle because it will help you avoid investment scams. When someone is offering you a low-risk investment with high returns, it would be prudent to turn around and walk away from them.

5. Do not invest in anything you don’t understand.

A car, a motorcycle, an airplane, a tractor — you will not drive or operate these unless you know how. Or else, you risk getting into an accident or worse, dying.

Investments are also called “investment vehicles” and it’s the same — don’t put your money on something that you don’t understand, or you risk making a mistake and losing money.

6. History always repeats itself. People seldom learn.

Human behavior and emotions play a big factor in moving markets and economies. While each individual is different, we collectively exhibit repetitive behaviors and reactions to things that happen around us.

This results in market patterns that repeat over time. That’s why it’s important to learn from the past if we are to prepare for the future.

7. Prices will inevitably follow value.

Companies in the stock market are businesses. And successful businesses are those who consistently bring value to their customers.

Stock prices may go up and down, but if the business behind it continuously makes money, then people will want to be part of it, even if it means buying up to purchase their shares.

8. The majority is more often wrong than right.

Just because a lot of people are saying it, doesn’t mean it’s immediately true or valid. It’s always more important to check the credibility of the source and the objective validity of the information.

This is the reason why fake news proliferates in social media because people assume an article is true just because a lot of people are sharing it, so they immediately treat it as truth and share it themselves.

9. No one ever lost money by selling at a profit.

Imagine that you bought a company at 10 per share. And you’re hoping to sell the stock when it reached your target price of 50.

After a year, the stock suddenly went up and reached 45 per share. And people are saying that it will continue to go up and reach 60 per share. But some people are now saying that the price would soon eventually start to go down.

What would you do? Are you going to hold and wait for 50? Or are you going to sell now and take profits?

The principle says that you should sell. Because markets are unpredictable, and getting 90% of your target is already a good win for your portfolio. What’s important is you made money now, because you can always find another opportunity to earn the remaining 10%.

10. If you always focus on the bad decisions you’ve already made, you will never be happy.

We all make mistakes, and what’s important is we learn from them. Whatever money that you lose in investing, think of it as the tuition you paid to learn how to properly do it next time.

Accepting your mistakes and moving forward, while equipped with new learnings, is a good way to find success and happiness in the future.

11. Volatility can be your friend if you know what you are doing.

There will always be hard times and good times. Prices will always go up and down. And if you know how to navigate through the volatility, then you will certainly make money.

You don’t even have to know much about timing the market, as there are strategies like peso cost averaging, that can help increase your profits after periods of recession and depression.

12. You can never control the weather, but you can control the ship.

We don’t have control over the global economy nor the national economy. However, we do have control over our personal economy. So it’s best to focus on what you can control.

Instead of worrying about the recession or being afraid of the falling stock prices; use your time and focus your energy on managing your investments, creating multiple sources of income, and increasing your financial literacy.

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  1. All good advise and #9 should be #1 for short term traders. You never know when the market will reverse and you give most or all of your gain.

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