Unshakeable

Unshakeable distills the essence of world class investors down into four core principles you should follow while investing, giving you simple rules and actionable steps to follow to make sure your finances flourish.

Warren Buffett is often quoted on his only two rules for investing. Rule #1 is to never lose money. Rule #2 is to never forget the first rule. That’s why Warren makes so few investments. He needs to be 150% sure he won’t lose money. But why?

The math is simple, but shocking. If you invest $1,000, the fun of losing some of it stops at about 10%. That kind of loss leaves you at $900, which means if your investment grows back by 11%, which is $99 in this case, you’ll be almost back at your initial investment.

If you lose 50%, however, and go down to $500, you need to double your money – just to get back to zero! So forget chasing massive gains. No one knows what’s going to happen on the stock market tomorrow, not even the best of the best, like Warren.

Just make sure you’re not losing money by focusing on safer options with limited downside and you’ll be fine.

Before you ask what those rare “safe” investments are and whether they even exist, I’ll tell you. Of course there’s no 100% safe investment, as taking on risk is the whole idea of where stock market rewards come from, but you sure can minimize it.

In fact, many of the smartest investors, like Paul Tudor Jones, look only for such high-reward, low-risk bets to put their money on. It’s called an asymmetric risk/reward ratio and it means the reward is disproportionately high for the amount of risk you’re taking on. In Jones’s case, he has a set rule to only invest in something that he can expect to make five times his initial money from.

With that in place, he can be wrong on four investments and the fifth one will still make him come out even. If he diligently does his homework though, and is right three times out of five, he’ll more than double his money!

A similarly crooked risk/reward ratio can be found when businesses are in a crisis, specific or general, especially if they trade at their all-time low. This was the case with Deutsche Bank last year – their stocks had never been below 11 € a share before, but now they were. I got in cheaply, at the cheapest price ever, to be exact and have already made 28% on my investment in less than a year!