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Bet on the US, I am

Thursday, October 23rd, 2008

How could you not be aware of the plummeting US economy? Everyday the headlines of stocks plummeting and new layoffs grow louder. The short-term future may be bleak and I believe that the economy is due for a correction after so many years of prosperity. Despite all the scariness, I am continuing to invest in US stocks and I am not the only one. Warren Buffet, a personal hero of mine, wrote a great opinion editorial over at the New York Times.

“I’ve been buying American stocks…Why? A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors.”

There are ridiculous values out there right now. Great companies trading at unreasonably low prices.

“Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.”

While nobody can predict the short-term movements of the market, invest in the long-term. I am a long-term investor and I will be putting my bets on the United States.

If you have not read Warren Buffet’s mentor Benjamin Graham’s book The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)
I highly recommend it. It is the most influential book of my investing life.

Here are my basic stock investing guidelines:
1. To buy a stock is to buy a piece of a company
A lot of people forget this principle. If you do not believe in or like the company do not buy the stock.

2. Buy what you know
This is the famous investing advice given by Peter Lynch.
Since I work in the gaming industry and spend all my time researching games, it is an area I understand. So I would rather buy stocks in gaming companies that I spend the majority of my time researching instead of a Bio-tech company that I know little about.
This rule also applies to products that I like and use. If a company does not produce a product or service I use, I will not invest in that company.
Check the balance sheets of the stock. I personally never invest in a company that has any debt. Also read their quarterly reports especially the risk segment. If you read this segment and still think that the stock is worth owning then you may have a winner. Learn how to read the numbers and balance sheet of a stock.

3. Do not buy stocks you are not willing to hold indefinitely
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.” – Warren Buffet
I’m not trying to turn a quick buck in stock investing. Again it comes back to whether you like the company enough to own and hold a piece of it indefinitely.

4. Buy slowly
Do not move in on a stock all at once. If the stock continues to go down and you like the stock, continue to buy in. If the stock goes up, I generally do not continue to buy in.

5. Be fearful when others are greedy, and be greedy when others are fearful
Above all this is what drives my investing.

Disclaimer: Stocks involve risk; I’m only telling how I personally invest. Any investment decisions you make are your own.

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