The Three Golden Rules of Investing to Help You Reach Your Financial Goals

A millennia-old saying — more of a curse really — asks that our adversaries should live “in interesting times.” But today, we live in those times.

• Mired in the muck of a global sovereign debt crisis since 2008
• Lacking historical precedent and the courage to emerge from it
• Caused by the $1,000,000,000,000,000 in financial derivatives (That’s one quadrillion — a thousand million million — created)
• With the by-products of insolvent nations and rampant inflation
• Leading to unrest and regime change, starting in the Middle East
• And ever-more volatile financial markets and panicking investors

What to do in 2013?
What to do right now?

Fortunately, there’s an answer. It’s the same answer that has always existed for questions — and times — like these. Because significant as the events of recent years undeniably are, there is zero need to panic.

None.

Not for an investor or trader who remembers that nothing changes the immutable laws of how markets work and how prosperity is created. Stay focused on those, and the likelihood of your financial prosperity increases accordingly.

That’s why they call them immutable.

1. First, wealth goes to those who produce more than they consume. Obvious, intuitive — and oft forgotten in days like ours. In market economies we serve others to increase income, and delay our own gratification to save and invest. We produce more and consume less. The more we can do this, the better off we are.

As a side benefit, this principle also tells us when larger entities — families, cities, states, nations — are better or worse off, as well. That’s why they call it a principle. And it means we spot more global opportunities — not just ways we change our own personal behaviors. When a nation runs both trade and budget deficits for example, it’s consuming more than it’s producing. And that’s a bad sign.

But economies boasting budget and trade surpluses are producing more than they are consuming. Understanding this principle can give us insight into how capital is flowing in the world and thus where investment opportunities likely to provide us with capital appreciation may emerge.
And that’s a good sign.

Second, follow the ratios. As prices grow more volatile — like now — it’s tougher to find more real value opportunities. So people seeking value — like you — counter an increasing volatility by focusing on long-term ratios. Seeing — and understanding — the ratio of the price of stocks, bonds, houses, commodities, and currencies help us know when assets are under- or over-valued for the long haul.

For instance, a recent ratio of stocks to housing prices relative to the last 150 years may help us spot probability opportunities. This site has been especially useful to me in conducting research.

Third, be right and sit tight. Because the laws don’t change (Rule One) and because smart traders do their research and invest for the long term (Rule Two) the bar-none best strategy is to find, get and keep good information … and then wait. Famed speculator Jesse Livermore — involved in a few fortunes in his lifetime — stated it as “be right and sit tight.”

And that’s exactly so.

It’s the corollary to “buy low, sell high.” Find investments and opportunities currently out of favor — i.e., that people think stink — buy into them and wait. You get out when the top has been reached, or even when you’re pretty sure you’re pretty close.

Livermore, for instance, is known for profiting at the middle 60% period of a multi-year trend. This means he lets himself “miss out” on the first 20% of investment time (when the investing opportunity is most disdained) and he allows for a pullback roughly 20% prior to when trends actually do peak, rather than trying to time the market. He gets the gravy but minimizes risk.

Professional training coaches do this as well. They recommend not trying to be Nostradamus, while simply finding the trends, and riding the biggest ones that yield great opportunities for capital appreciation via world financial markets.
Of course, first you have to find them.

It’s not as hard as it seems, and we don’t have to feel cursed while we’re doing it. Learn — and act on — the three rules: laws don’t change, invest long-term, get good information.

And recall also how great men used that old curse — “may you live in interesting times” — for their own purposes. At the end of their illustrious lives, John Adams wrote to Thomas Jefferson saying, “My friend, we have lived in interesting times.”

Worked out OK for them.