OK let's talk about principal number five if you want to become a successful value investor avoiding
losses should be your first priority even over generating investment gains.
Remember rule number one never lose money.
And rule number two never lose money.
And I can tell you rule number three and number four again never lose money.
Here's an interesting fact.
It's simple math.
If your portfolio's value drops by 20 percent and then grows by 20 percent you've lost money.
More to the point.
In that situation you need larger returns to meet your goals over time that might lead you to take larger
risks than you should which could lead to more losses as a value investor.
You can minimize the risk of big losses by investing at a discount to a company's intrinsic value and
that's why you need to use the margin of safety as a part of your valuation process.
While you may not always get market beating growth but if you can minimize losses and the need to recover
from those losses you'll need less growth to meet your investing goals over time.
And besides giving yourself a high margin of safety there are many ways you can go about minimizing
losses on your investments for example you can easily avoid common costly mistakes like over trading
by only investing in companies that you're sure that you'll make a profit with.
And before making any trade you should always have an entry and exit strategy in mind.
And don't forget to place a stop loss to protect your money.
OK.
That's Principle Number Five.
Never lose money.
See you in the next video.