Theory/Rules

Portfolio Management is neither art nor science. It is instead a special problem of determining the most reliable and efficient way to reach a goal, given a set of policy constraints, and working within a remarkably uncertain, probabilistic, always changing world of partial information and misinformation all filtered through the inexact prism of human interpretation.

Charles Ellis or “the Dean of Portfolio Management” (1993)

0. The most important rule is to buy during a dead calm 

Everything else is less important. You need to focus on this and build liquidity to do it.

The plan to buy during a crunch is not the problem. The challenge is to do it in reality. Don't listen to any expert, just do it.

1. Know about your risk

Use capital which doesn't effect your solvency. Know what you can loose and be able to loose the amount.

2. Diversification  

Warren Buffet said: Diversification is like having a lot of woman, but  one  would not know anybody of them well. Mhmm ...

In fact we are not Warren Buffet and diversification  is essential for successful investing. Start with five to ten different investments. The investments should be in the best case negative correlated to each other (Take a look at the correlation and their volatility during different economic cycles for the last five years, and calculate the optimal portfolio). In addition to the first rule try to invest in extreme chances.

Here is an example of a more or less diversified portfolio: 1. Real Estate (Flat in a booming city and good suburb in Switzerland, Zurich) 2. Shares from first solar (Solar) and Tesla (electric sports car) 3. Call Options Apple (Momentum for the next year) 4. Commodities oil and gold. (positive fat tails during crises) 5. ETF Bovespa (Brasil) 6. ETF Sensex (India)

3. Rational

Take a look at the common psychological errors and try to avoid them, by making yourself rational and introduce a controlling system for yourself.

4. Strategy

The strategy you use should have a fit with your knowledge and time you are able to effort.

5. Fundamental data

For any investment, be curious about the financial figures. Force yourself to calculate and to do valuation.

6. The market

 Don't become a sheep  following the noise, filter the information "rational".  If you decide to follow trends or bubbles do it rational too. This is called momentum strategy (see forum, investment horizon up to six months) on the other hand, in the long run reverse to the mean can occur. For long term investments it is still better to focus of fundamentals of non efficient markets. Ask yourself,  how efficient is the market I am investing into? Do I have a good change with my specific knowledge to outperform the market or is it better to go long or short in the market itself?

"A good company isn't a good investment." 

7. Losses 

"Cut losses short and hold your winners long." This wise old Wall Street sentence is essential because their exist no genius who could pick only outperforming stocks. But with this rule you are able to optimize the outperformance of your profits.