Warren Buffett is known as the world’s greatest investor, when asked what is the most important rule in investing. He said “Rule #1: never lose money, rule #2: never forget rule #1. I have spent a lot of time pondering what he means by never lose money. Even he has lost money on a few investments. Here is what I think he means by “Never Lose Money”
- Don’t Take Unnecessary Risk. You should be aggressive with growing your income but conservative with investing.
- Don’t risk what is important to you, to try and get what is not that important to you.
For instance, suppose you had 5 Million Dollars set aside as your retirement money and you can invest it guaranteed and make $5.2M in a year, but someone offers you a high risk investment that can help you make $10M in a year but you can also lose your principal.
Would you take the chance? Even though you don’t need the additional $5M.
I was having a conversation with six business owners over the past weekend. They subscribed to the paradigm of keeping the maximum mortgage on their homes and investing the rest, because they can earn 8% in the stock market but their mortgage only costs 3%. All these business owners earn over $300k a year and have been earning well over $100k for the past 10 years. I asked them if they can afford to take 3 months off work and still maintain their lifestyles and they all said No.
The fact is Life is not all about an endless pursuit of wealth or chasing a higher return on investment, life is about having the freedom, security and peace of mind to pursue the activities that brings you the most satisfaction.
5 Steps To Never Lose Money
- Pay off all consumer debts: Consumer debt is a slave master, pay off all consumer debts regardless of interest rate. Yes, this includes your personal home mortgage. You are consuming your home, so it is a consumer debt.
- Invest in Personal Development: The most important investment you can make is in yourself.
- Don’t be greedy: Nothing exposes your investments to losses quicker than greed.
- Invest in wonderful companies: Invest in companies and instruments that you can close your eyes for the next 10 years and the investment will still be doing great.
- When in doubt, say NO: Steve Jobs once said that to be really, really successful…you have to say NO to almost everything. Focus your efforts and energy on what you know best.