Better investing implies that you've already started see the results of your investing process and you want to improve. You can't get better until you've started, and you'll need a solid starting point to measure your gains. And by solid starting point, I mean a repeatable decision-making process.
You did start off with a process right?
If not, no worries. You don't have to spend the next ten years developing one from scratch. This site is set up around one that I created, so feel free to use it yourself.
Once you're using a process consistently (whether it is the process above or your own), you're ready to move towards "better investing".
That's it. Apply these three steps, and I guarantee better investing performance. And yes, it really is that simple. The hard part is sticking to it.
To summarize, position sizing will tell you how much money to invest, based on how much money you are willing to lose before you decide an investment is no good.
Through position sizing, you make it possible to continually invest, regardless of how many mistakes you make. This is the key to capital preservation.
I can't stress enough the importance of capital preservation. It is one of the first things you should think about in the "Planning" phase of your investing process.
Even principle #3 is indirectly related (3 = The only "good" investments are the ones that you sell for a profit) because until you sell, all investments have the potential to lose money.
Want more proof that capital preservation is important? Let's see what successful investors have to say.
Warren Buffett once quoted two rules for investing:
Rule #1: Never lose money
Rule #2: Never forget Rule #1
Still not convinced?
Paul Tudor Jones, founder of Tudor Investment Corporation and #336 on Forbes Magazine's Richest person in the world, had this to say about capital preservation:
"I’m always thinking about losing money as opposed to making money.
Don’t focus on making money; focus on protecting what you have."
Once you've limited risk, you're ready to focus on repeatability. This step usually impacts the trading and monitoring phases of your process.
Consistent returns come in many forms. The key here is to buy and sell in a disciplined way.
From a personal finance perspective, consistency may come in the form of an automated, monthly deposit into one of your accounts.
You could target a 20% capital gain for each stock you buy, at which point you ALWAYS sell half your shares (a growth investing strategy).
Or you could purchase a stock that is considered a "dividend king" because it has increased it's dividend every year for 50 years (an income investing strategy). Consistent returns create stability in your personal finances, which makes financial planning and budgeting so much easier.
In step 2, you created a consistent returns from your investments. Step 3 takes those returns and re-invests them.
For example, let's say you achieved the 20% growth goal and sold half of your position. Now what?
Or, maybe you've got some dividend income that needs to be invested.
How you go about creating compound returns is up to you. I know some people that like to use their profits to go after investments with higher volatility and greater profit potential. The bulk of their money preserved is safe, invested for consistent returns and limited risk.
Notice I didn't say they like to go after "high risk" investments. This is because risk is determined by your position size, not by the investment you choose (see capital preservation).