Rule #1: As the Investor, I Must Understand What I Own

If you do not understand an investment, regardless of how many times it is explained to you, in what kind of terminology, and by whom, do not buy it. You wait to buy it until you understand it. If you can understand it, then you should be able to assess risk, and that’s the most important component of this rule. You must evaluate what could happen, positive and negative, and how you would be affected.

Sometimes the risk can be accompanied by illiquidity. For example, you might think you have a liquid asset, but maybe you did not completely understand the investment from the start. Later, you may learn that it is actually not liquid after all. In that case, your error is compounded because ...

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