As many investors are eager to make up losses witnessed in last year’s market meltdown, there are some basic exchange traded fund (ETF) rules that one could follow to make it a bit easier.

Michael Brush of MSN Money outlines a few rules that the world’s most famous investor, Warren Buffett uses when he does his investing, and we added our own twist on them as they relate to trend following and ETFs.

  • Resist the urge to constantly buy and sell. We suggest that you watch the trend lines and buy or sell when certain signals are given. This eliminates the potential of buying or selling when your emotions might be strongest.
  • Stick with what you know. It is always a good idea to invest in something that you know about and understand. If you don’t know about it, do your homework before investing. (Visit our ETF education page for articles that will help you).
  • Look for companies with a sustainable competitive advantage; this will ensure long-term strength. By owning a basket of stocks held in an ETF, you will help mitigate your risk and exposure to more volatile or uncertain companies.
  • Buy cheap companies.  When stocks, ETFs or any other investment tool has hit rock bottom, there is nothing to do but go up.  Of course, be sure to wait until the 200-day moving average is crossed. (Read more about trend following here).

For more stories on trend following, visit our trend following category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.