The stock market is filled with individuals who know the price of everything, but the value of nothing.

-Phillip Fisher

Back in 2013, Harriman House published a book called Professional Investor Rules, which covered … guess what … self-imposed investment rules set by a selected number of professional investors (exhibit 1). Cutting a long story short, back in February, one of the editors of Harriman House suddenly called and asked me if I would be interested in writing a chapter for the follow-up to Professional Investor Rules that they are planning to publish later this year.

The very first thing I did was to check who contributed to the first book. When realizing that investment midgets like Marc Faber, Bill Gross and Niall Ferguson (plus more than 20 other highly esteemed professional investors) had contributed, I said to myself: “Well, if they can do it, so can I.”

Exhibit 1: Professional Investor Rules by Jonathan Davis
Exhibit 1: Professional Investor Rules by Jonathan Davis
Source: Harriman House, 2013

The following is, with only a handful of adjustments, my contribution to the second rule book. It is admittedly a little different from the typical Absolute Return Letter, but I enjoy not always writing about the same topics, and I hope you’ll find it equally enjoyable to read. I will let you know when the book is published. All I know at this stage is that it should come out later this year.

Rules about Rules

Investment rules shouldn’t be static. Investors should adapt their rules per the environment they are in. From experience, I can confirm that those who don’t adapt usually get into trouble sooner or later. My first and most important rule when investing is therefore a rule that defines the rules I should adhere to.

What exactly do I mean by that? How can I possibly have a rule about rules? Allow me to explain. As I see things, there are rules and then there are rules. The most important ones always apply; those are my first frontier rules. There are not many of them, but they are all critically important.

The second layer of rules – the second frontier – are strictly speaking not rules but principles. I treat them as rules, though, because I follow them almost whatever happens.