My Investment Rule No. 7

My investment rule no. 7 states that "You can never find it easy to catch a butterfly unless you have a big net." In my first rule, I say that market direction is unpredictable. It is like a butterfly that is flying up and down. So in order to gain money from investment we must have a strategy and enough capital to manage the random nature of the market.

If you only have a small capital, it is not easy to gain money in the stock market unless you are very lucky. All you can do is to put in one or two positions and have to wait for the market direction to go up in order to earn money. If the market direction happens to go down, you either cut loss or wait patiently for the price to go up again.

However if you have a big capital, you can split it into a few parts and use dollar-averaging strategy. All you will need to do is to slowly invest small position at a time. If the price of your stock happens to go down, you will add in more positions. For good fundamental stock, there will be a time where its price will hit the bottom and started to rebound from there. At that point of time you can stop adding more position and wait for the price to go up until you are satisfied with your gains.

Putting multiple positions at different prices is like having a big net and you will find that it is definitely easier to "catch" money with that.

My Quotes/Rules of Investment