WEBVTT

00:05.080 --> 00:11.350
OK let's talk about principal number five if you want to become a successful value investor avoiding

00:11.350 --> 00:16.750
losses should be your first priority even over generating investment gains.

00:16.750 --> 00:20.140
Remember rule number one never lose money.

00:20.140 --> 00:23.760
And rule number two never lose money.

00:23.890 --> 00:29.200
And I can tell you rule number three and number four again never lose money.

00:29.200 --> 00:30.500
Here's an interesting fact.

00:30.520 --> 00:31.650
It's simple math.

00:31.720 --> 00:37.740
If your portfolio's value drops by 20 percent and then grows by 20 percent you've lost money.

00:38.550 --> 00:39.500
More to the point.

00:39.570 --> 00:45.930
In that situation you need larger returns to meet your goals over time that might lead you to take larger

00:45.930 --> 00:51.500
risks than you should which could lead to more losses as a value investor.

00:51.510 --> 00:58.230
You can minimize the risk of big losses by investing at a discount to a company's intrinsic value and

00:58.230 --> 01:02.850
that's why you need to use the margin of safety as a part of your valuation process.

01:02.850 --> 01:08.340
While you may not always get market beating growth but if you can minimize losses and the need to recover

01:08.340 --> 01:13.720
from those losses you'll need less growth to meet your investing goals over time.

01:13.770 --> 01:18.630
And besides giving yourself a high margin of safety there are many ways you can go about minimizing

01:18.630 --> 01:25.050
losses on your investments for example you can easily avoid common costly mistakes like over trading

01:25.290 --> 01:30.080
by only investing in companies that you're sure that you'll make a profit with.

01:30.080 --> 01:35.490
And before making any trade you should always have an entry and exit strategy in mind.

01:35.490 --> 01:38.290
And don't forget to place a stop loss to protect your money.

01:39.100 --> 01:39.630
OK.

01:39.790 --> 01:41.590
That's Principle Number Five.

01:41.590 --> 01:43.930
Never lose money.

01:43.930 --> 01:45.370
See you in the next video.