1.
Importance of Not
Losing Money
When Investing
By www.ProfitableInvestingTips.com

2.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
The bull market is aging and a potentially
damaging trade war is ramping up.

3.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
With investment risks in mind, we have
written a lot recently about investing
without losing money, what criteria to
choose investments, safe investments
for retirement, and the risks of offshore
investing.

4.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
A recurring theme has been the importance
of not losing money when investing.

5.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
One does not need to look any farther than
a Warren Buffett quote to understand the
importance of this subject.

6.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
The Oracle of Omaha said that the first rule
of investing in not to lose money and the
second rule is not to forget the first rule!

7.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
When the market is going up, why is it
important to think about not losing money?
It is all in the arithmetic.

8.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
Importance of Not Losing
Money When Investing: The
Arithmetic

9.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
If you have an investment that routinely
appreciates at 10% a year, you should be
happy.

10.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
Let’s assume that this is a stock that does
not pay dividends.

11.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
The value per share just goes up 10% year
after year.

12.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
If you started with $10,000, where does that
get you at the end of each year?

13.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
Exponential growth of a sound investment

14.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
• Year 1: $11,000
• Year 2: $12,100
• Year 3: $13,310
• Year 4: $14,641
• Year 5: $16,105.10
• Year 10: $25,937.42

15.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
This is a nice return on investment. But,
what if, rather than a 10% gain every year,
there are some losses thrown into the
picture?

16.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
What kind of rate of return do you need the
next year to make up for one year losses of
10%, 20%, 30%, 40% or 50%?

17.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
Rate of return needed in one year to make
up for losses in the preceding year

18.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
• Loss = 10%, required return the next year
= 11.11%
• Loss = 20%, required return the next year
= 25%
• Loss = 30%, required return the next year
= 42.86%
• Loss = 40%, required return the next year
= 66.67%
• Loss = 50%, required return the next year
= 100%

19.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
The obvious point of this little arithmetic
exercise is that if you lose money on an
investment, you have less money to work
with.

20.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
Thus, you need a higher return on
investment to get your original investment
back.

21.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
And that simply assumes that you are back
to ground zero.

22.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
Forget about that original year after year
exponential growth!

23.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
Buffett is a smart guy, but to understand his
advice, you only need to do the arithmetic.

24.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
Importance of Not Losing
Money When Investing: What
Are Your Options?

25.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
If you had simply put your money in CD’s at
the local bank in the days leading up to the
2008 stock market crash you would not
have lost any money.

26.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
But, if you had left your money in CD’s you
would have experienced a period of historic
low interest rates.

27.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
The ideal solution would have been to pull
your cash out of risky stocks when the
market looked suspect and then re-invest
when the market bottomed out. But, how
would you know?

28.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
Intrinsic Stock Value

29.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
Perfect market timing is impossible. But,
there are general principles that help an
investor decide “when to hold em and when
to fold em” to quote Kenny Rogers and The
Gambler.

30.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
An approach invented by Benjamin Graham
is called intrinsic stock value.

31.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
The dictionary definition of intrinsic stock
value is its fundamental value.

32.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
It is obtained by adding up predicted future
income of a stock and subtracting current
price.

33.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
It can also be seen as actual value of an
equity versus its book value or market
value.

34.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
The concept of fundamental analysis of
equities evolved from this concept.

35.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
Using fundamental analysis the intrinsic
value of a stock is the expected company
cash flow discounted to current dollars. It is
a discounted cash flow valuation.

36.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
Successful long term investors do not bet
on the stock market.

37.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
They only invest in a company when they
understand its business model and when
they can reliably predict that the business
model will create profits into the indefinite
future.

38.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
There were successful long term investors
who simply got out of the stock market in
the run-up to the 2008 crash.

39.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
And, there were those who simply stayed in
the market and rode the subsequent bull
market to increasing gains over the years.

40.
http://profitableinvestingtips.com/profitable-investing-tips/importance-of-not-losing-money-when-investing
The key to their approach is understanding
how the company makes money and how
its approach will continue to work, or not,
over the years.