Weekend Edition

 Buying good newsletters that offer thorough fundamental research on high-quality stocks and giving yourself a financial education is a far more efficient way to invest than buying even the least expensive mutual funds.

 

While this is true, it can be difficult to accomplish. We know, as publishers, that the public will buy exactly the wrong letters at exactly the wrong time – what I've labeled the financial publishers' paradox.

 

The key to avoiding these pitfalls is to build a relatively diversified portfolio (15-20 stocks) of very high-quality, long-lived businesses (that pay dividends) when you can buy shares at a very attractive price. If you work hard to avoid buying risky stocks – even if they have a great story – you'll be successful.

 

 People use our research in lots of different ways. Clearly, the best way to invest is to buy a great company you know well, in an industry you understand, at a very attractive price. Unfortunately, that's not always possible.

 

Our research (we hope) helps educate our subscribers about companies that are very attractive across many different sectors. But we certainly wouldn't pretend to know everything about every company we cover. We hope our subscribers do their own due diligence, too – like reading the company's annual report, looking at its financial statements, and following it quarter by quarter.

 

If you'll take the time to get to know four or five companies well each year, it won't be long until you're familiar with lots of companies and lots of sectors.

 

 While we don't provide any individual investment advice, here's how we think everyone should begin using our letters...

 

First, you have to learn how to avoid losing money before you're likely to be successful. Keep the majority of your assets in safe, fixed-income positions while you get to know our analysts and their recommendations.

 

Second, always remember to use good discipline – which means appropriate position sizing and trailing stops.

 

Third, approach our recommendations with a firm eye on risk. Buy the stocks you believe have the least risk.

 

Once you've mastered safe investing, you can begin to buy one or two of our more speculative recommendations. I would suggest spending at least one year getting to know our analysts and their recommendations before I would even consider being "fully invested."

 

One last piece of advice: I believe almost all individual stock investors lose money, nearly every year. And they all fail for the same reason: They put far too much of their portfolio in one or two risky stocks they don't really understand.

 

If you lose your risk-management/position-size discipline, you will most likely fail, no matter what newsletters you're reading.

 

Regards,

 

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• How to Make a Fortune Trading Drug Disasters
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