In the third installment to the “Essentials of Responsible Investing” series, we’ll explore additional principles and insights essential for making informed investment decisions. From understanding the limitations of predicting stock prices through AI or mathematical formulas to recognizing the value of investing in companies that have weathered crises, we’ll delve deeper into the complexities of navigating the financial markets with prudence and foresight.

1. Avoid Overtrading

This doesn’t mean refraining from shorting stocks. Shorting isn’t inherently bad, but since both buying and selling incur fees, it’s advisable to act cautiously. Remember that even small fees can diminish your profits. Make sure to include fees in your ledger to accurately calculate your gains and losses. Of course, if you’re proficient in shorting, you can invest, including fees, to make profits.

2. Boldly Forsake Investments If Future Income Can’t Be Estimated

Warren Buffett and Charlie Munger judge whether to buy stocks based on whether they can reasonably estimate the company’s future income over the next five years. If they determine it’s possible, they’ll buy the stock at a reasonable price compared to their lowest estimated income. However, if they can’t estimate the company’s future income (which is the case for most companies), they’ll move on to other companies.

3. Avoid Buying and Selling Hastily Over Extended Periods

Beginners who enter the market during overheated conditions and experience valuation losses are at risk of disappointment. To avoid such timing mistakes, buy stocks over an extended period and never sell just because the news is bad or the stock price is high. By adhering to these principles and minimizing costs while diversifying across different sectors, even novice investors can likely achieve satisfactory returns.

4. Stocks Represent Ownership of Companies

Generally, when we think of stock investing, we consider buying before it rises and selling before it falls, which is the premise of technical analysis. This approach, while it may have made some people significant sums, is inherently exhausting. Predicting market trends is essentially impossible, and one must always monitor stock price movements and watch for new trends. Additionally, predicting and exploiting market trends involves reading the psychology of other investors. In a vast game where many technical analysts attempt to read others’ psychology, can only one person accurately analyze trends? Trying to profit from price changes in real-time is, unless you’re an investment AI that can respond to changes every minute, impossible for humans.

5. Invest in What You Understand

Stock investing entails buying stakes in and working alongside actual existing companies, not merely purchasing pieces of paper or lottery tickets. As a result, successful investors like Buffett don’t take an interest in businesses they don’t understand at all. Venture companies introducing new technology, in particular, are the ultimate gamble. New technologies can be easily disrupted by other new technologies. Instead of these tech stocks, seek out businesses with clear revenue models, long-term stability, and easy-to-understand operations. It’s even better if the business is similar in nature to one you’ve run or invested in before. Having directly experienced the industry, you’ll have a good understanding of how the business operates, what opportunities and threats exist, and its long-term prospects.

6. Stock Prices Cannot be Perfectly Predicted by AI or Mathematical Formulas

Despite claims that new stock formulas or AI can make money, no one has ever succeeded by buying into such notions. These formulas or AIs are naturally tailored to fit past data and may show success based on historical records, but they can never guarantee future profits. Similarly, if such machines or stock formulas truly existed, individuals would not keep the money-making secret to themselves. Consequently, the only way to profit from stock machines is by selling them to others. Regardless of AI apps or other tools, if individuals do not manage their own money, they risk losing everything to fees and charges. Remember, no one else will make money for you.

7. Companies that Have Overcome Crises are Considered Good Companies

Successful investors tend to avoid investing in companies with short histories, even if they have shown remarkable short-term performance. Every company faces the possibility of bankruptcy, and overcoming such crises is extremely challenging. Especially concerning are companies with young management teams and unions. It is advisable to invest in companies that have experienced and overcome bankruptcy crises.