SOUND INVESTMENT PRINCIPLES

Would you agree that making mistakes is inevitable in any human endeavour? Are you willing to accept occasional errors and use them as stepping-stones for building a better future? If that is the case, why not view stock market losses in the same way?

The main lesson to be drawn from the current situation is that, when it comes to investing in shares, methodology is everything. It is time to restate the validity of the six investment principles that have endured the best and the worst of times:

1. Choose shares of solid companies, preferably those that pay dividends.
2. Diversify your assets amongst different sectors and countries.
3. Never place more than 5% of your savings in one single investment.
4. Understand that nobody can predict with certainty when markets hit bottom or are about to crash. Never act blindly on someone else's advice. Always check things for yourself.
5. Protect your assets with reasonable stop-loss orders.
6. Make regular purchases of shares, monthly if possible, in order to ensure that you will also invest during periods of pessimism.

The sixth principle is the most difficult to apply, since overreacting to painful experiences is heavily anchored in human psychology.

Today the stock markets of the world present many opportunities, but after last year's losses, few are willing to take any risk.

I belong to those few and the following three belong to my favourite shares at this time. These are three multinational companies in the field of health and hygiene, making profits and paying good dividends:

* KIMBERLY CLARK (NYSE:KMB), which at the current share price, has a yield around 4.5% and a price/earnings ratio around 13.

* NOVARTIS (NYSE:NVS), which is paying a 4% dividend and has a price/earnings ratio around 12.

* JOHNSON AND JOHNSON (NYSE:JNJ), which is yielding around 3.5% and has a price/earnings ratio around 13.

The last year has proven many investment theories false, but essential truths have not been undermined. Market prices have been brought down to a point where you might want to make some moves.

Whatever you decide, don't trust anybody and check all facts for yourself. Remember that times of economic recession can be the best to rebuild an investment portfolio.

As Lao-Tzu recommended twenty-five centuries ago: "Don't make the mistake of believing that you know what you don't know, since truth is often paradoxical."

[Text: http://johnvespasian.blogspot.com]

[Image by extranoise under Creative Commons Attribution License. See the license terms under http://creativecommons.org/licenses/by/3.0/us]