Sharing the golden rules

Whether you liked or loathed the late Rene Rivkin, he will remain one of the larger than life individuals I've ever worked with in my life in money and the media. He was largely regarded as a great speaker and once put a cast of international speakers to shame, including US army general Norman Schwarzkopf and Mikhail Gorbachev.

Highs and lows
Apart from being highly entertaining, he knew the stock market and was a great player of its many moods, while he confessed to having difficulty handling his own. And so at a time when the stock market drives appear to be changing from being driven by resource stocks riding a commodity price boom, it's likely other stocks will take their place.

Bumps to come?
Those fund managers who ride cyclical stocks could perform less impressively while those who have looked like slow coaches - value fund managers - should start topping the performance comparison tables.
No one knows how long the market will remain in positive territory but many players suspect two more volatile years, where the up days outnumber the down days.

A legacy
Whatever happens, it seems like a good time to remind novice, and even experienced market players, of what Rene called Rivkin's Rules, which he gave to me for a book I wrote a few years ago called Shares: Your Questions Answered.

The golden rules
So here they are, with a Switzer comment or two in brackets:
1. Never risk your lifestyle on any one investment. Award winning fund managers divide their funds between local and overseas funds, property, bonds, cash and other assets. Smart share players hold at least 10 stocks, so one or two 'dogs' will be outweighed by some absolute howlers and some rock solid performers.
2. Look for low-risk trades. Anyone thinking about Telstra, which has some challenges and say Rinker, which has been a great performer though the price is down, knows which company is the lower risk proposition.
3. A good company can be overpriced and a bad company can be underpriced. However a good company will repay you in the long-term while a bad company should be only seen as a short-term play.
4. Make sure you understand every investment you make. This is the big rule. Never forget it!
5. Be careful of investing in companies that are in sectors in which most participants are performing badly. Banks are the opposite case.
6. Follow the trend.
7. When a market makes a new high for the first time in a while, it will most likely continue the trend. The US market recently broke through a former high of 11,722.98, which was last reached in January 2000 in the dotcom boom days.
8. If you don't have a number of good reasons for holding an investment, then you should not hold it. The fact that you bought it above its current price is not a good reason to hold on.
9. When buying shares ask yourself: "Would I buy the whole company?"
10. Always calculate a risk-reward ratio for every investment.
11. Most trading problems come from breaking one rule - cut your losses short and run your profits.
12. Read every bit of financial material you can lay your hands on - you never know where you find a useful snippet.

There is always more to learn about playing the market but these Rivkin recommendations are a damn good start.

I recall some time ago the Financial Times in the UK had a stock market contest between expert brokers and fund managers along with a few amateurs. A pharmacist from Luton or some place like it won and was asked how he selected his companies.
He said he did the research and then visited the businesses to see if they felt like winners. Old fashion valuation methods should never be underestimated in selecting shares.

Click here to visit Peter Switzer's website