Investing principles that build upon basic beliefs

To build upon the basic beliefs outlined in my previous post, I am going to outline several investing principles. Initially these investing principles will be generic in nature and serve as framework for the more specific concrete action you could take later.
1. Diversification is not a theoretical term and it really works. You have heard the old saying "Don't put all your eggs in one basket"  and that is essentially diversification. Diversification can be looked at various levels, Owning different Asset Classes and diversifying within Asset Classes.

What is an Asset Class?
If you do not know what an Asset Class is please read this definition in Investopedia.

Now if take an Asset Class like Stocks you can further diversify within that asset class by owning different kinds of stocks. They could different by market capitalization, sectors, geography etc. However the key principle is you need to diversify your investments across multiple asset classes and even better asset classes that are not correlated to each other.

What is Asset Correlation?
In its simplest form you need asset classes that behave differently or if one rises other falls or remains stable.

2. Stocks or Equity should be the core and a major portion of your investments. Building on the basic belief that world class companies will hire top talent to produce goods and services for a profit you  should be owning stocks as a major portion of your investments even if you are retired or closer to retirement.

You should be thinking that this is crazy. No it is not here comes my next principle to clarify that.

3. You should not rely on the market value of the stocks for your investments but should rely on the income they can generate( dividends they pay) for your living expenses if you do not have other sources of income(like a job).

In the next post I will build on these principles and outline how to go about selecting the stocks as a major or core part of your portfolio.

Basic Beliefs
If you want to be a successful investor for the long run you should strongly believe in the following principles from the bottom of your heart.When I say believe I mean 100% there should not be any wavering on your part when you see market correct by 4% last week. It is always easy to believe in your theory when market agrees with you but is difficult when you see high volatility in the market and when the stocks you own drop by 10% in a single day. If you believe strongly in the principles below then you can stand strong and hold your position. Without further delay here are the principles:

1. World will be a better place in the future: You need to be an optimist and believe world will be a better place tomorrow than today. There are budget deficits across most of the developed world now that may make you doubt this but you should believe that the living standards of human kind will improve in the long run.
2. Believe in Capitalism: You should believe that democracy will spread over the world and with it more countries will embrace capitalism. This means world class companies will be able to create products and services that will make our life better and will be able to sell them for a profit.
3. It is a border less world: If you believe that world will be a better place and world class companies will help us live a better life then the next leap is that there are no borders for these world class companies. You already see for many for the top100 companies in USA most of their revenues come from around the world. They are present in most of the developing countries and frontier markets and sell products around the world. You cannot pin these companies to a region. If you own Coca Cola it does not mean you own a US company you really are owning a global company. Similarly Nestle is not a Swiss company but a global company. So if you these world class companies you need not have to worry about diversification around the world because the company gets revenue all around the world. 

First you should get used these basic principles and be comfortable with it. In the next post I will go through some of the investing principles. 

Welcome

Welcome to the long run investing blog. You may be wondering another investing blog? There are thousands of books on the subject and may be hundreds of thousands of blogs on investing.

What is new here?
Let me upfront in saying nothing you read here will be ground breaking.There are no magical tips, no short cuts and no get quick rich tips. This blog is going to have sensible common sense investment advice that works only in the long run. I cannot assure you will double your money in a year. What I can assure you is, if you follow the simple advice in this blog, you will see the results and you can have a happy retired life.

What is required from me?
You may be saying, I do not like investing. It is boring, I do not have enough money to invest and I know I cannot compete against this Wall Street investors.

Well hear this. I am going to tell you how to make investment interesting. You do not need a lot of money to get started and YES you can beat the short term focused Wall street investors. We spend a heck a lot of time on entertainment wasting time and money and if we can spend a little time focusing on how to save and grow our money our life will be much better off .

Stay tuned! In the next post I am going to start off with the basics.