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Chapter 15. Ten Lessons for Investors > Lesson 9: Know yourself

Lesson 9: Know yourself

No investment strategy, no matter how well thought out and designed it is, will work for you as an investor if it does not match your preferences and characteristics. A strategy of buying stocks that pay high and sustainable dividends may be a wonderful strategy for risk-averse investors with long time horizons who do not pay much in taxes but not for investors with shorter time horizons who pay high taxes. Before you decide to adopt any investment strategy, you should consider whether it is the right strategy for you. Once you adopt it, you should pass it through two tests:

  1. The acid test: If you constantly worry about your portfolio and its movements keep you awake at nights, you should consider it a signal that the strategy that you just adopted is too risky for you.

  2. The patience test: Many investment strategies are marketed as long term strategies. If you adopt one of these strategies but you frequently find yourself second-guessing yourself and fine-tuning your portfolio, you just may be too impatient to carry this strategy to fruition.


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