10 advices to save a lot of time and a lot of money when you begin

I know that many ideas here have been written in the past. But it's a post that I plan to submit to Robin for his new book. You can follow Robin on Facebook via this link.

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The hardest thing for new investors is to know where to invest.

What's a good company? What's a good CEO?

Both are very important, but, for beginners, they're both hard to evaluate.

We can't know these things instinctly. That's why most people follow the first person they can: A journalist on TV, on a website, on the radio, a workmate or a neighbour. And there's no warranty of quality.

Your duty as an individual investor is to seek autonomy as soon as possible. I know it sucks, because we like to make as little efforts as possible to get what we want. It's gonna take years, but my advice is to read about the stock market like you would read about another topic of interest: Rock and roll, movies, hockey, football, etc. You won't be good if you're not passionate about it. Nobody gets good at anything if they're not passionated about it.

If you don't get the autonomy I'm talking about, you'll be manipulated in a way or another. You'll read people trying to pump their penny stocks, which can be done easily if a moderate audience swallow everything they say. Or you'll buy the big names that analysts sponsored by big companies will try to sell you. These big names may not be bad picks, but they may not be great picks either.

You won't get that autonomy easily, so, if you find some people that look honest, stick with them for a while. There's not that many of these people in the investment world.

To help you a little, I have "5 never-invest rules" and "5 essential to invest rules".

Let's begin with the "5 never-invest rules": 

1- Never invest money on a stock where there's a lot of controversy;
2- Never invest money on a penny stock;
3- Never invest money in an industry which is declining;
4- Never invest money on natural resources; 
5- Never invest money on a company that carries too much debt (for instance, 50% of their market cap or more);


And here's my "5 essential to invest rules":

1- Search stocks with a beta lower than 1 (lower than the market) (precision: many people seem to think that this metric is useless but I believe in it)
2- An historical return on equity (ROE) over than 15, and, ideally, higher than 20;
3- A forward PE between 15 and 25 (of course, if you pay 25 times next year's earnings, the growth has to be exceptional and the historical PE of the stock must have always been high);
4- Annual EPS growth of at least 10% over the last 5 years;
5- A high predictability of earnings.

If you apply the "5 never invest rules" and the "5 essential to invest rules", I think that your chances of getting a great selection of stocks are high.  I can't imagine someone going bankrupt while applying these 10 rules on a 15-20 stocks portfolio.