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The 12 Rules of Simply Investing

By Kanwal Sarai
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Here are the 12 Rules of Simply Investing, the same rules I have used over the last 18+ years to invest successfully. These rules are designed to minimize your risk and maximize your gains for the long-term. These rules make investing easy and simple to implement. Without further delay, here are the rules:

1. Do you understand the product or service offered by the company?

2. Will people still be using this product or service in 20 years?

3. Does the company have a low-cost durable (lasting) competitive advantage?

4. Is the company recession proof?

5. Has the company had consistent earnings growth?Generally the EPS growth must be at least 8%

6. Has the company had consistent dividend growth? Generally the dividend growth must be at least 8%

7. Does the company have a low payout ratio? Payout ratio must be 75% or less.

8. Does the company have low debt? Debt must be 70% or less.

9. Does the company have a good credit rating? Company must have a minimum S&P Credit Rating of “BBB+”.

10. Does the company actively buy back its shares?

11. Is the stock undervalued?
a. The P/E Ratio must be 25 or below.
b. Is the current dividend yield higher than the average dividend yield?
c. The P/B Ratio should be 3 or less.

12. Keep emotion out of investing.
A reminder to keep emotion out of the selection process. Discipline and patience are the keys to successful investing.

Are you looking to get started with investing? In the Simply Investing online course, I cover the 12 Rules in greater detail and show you how to obtain the values you need in order to apply the 12 Rules, and become a successful investor.

No time to take my online course? Then the Simply Investing Report is for you. In the Report I apply the 12 Rules to 200 stocks each month, with all the values calculated for you.

The 12 Rules of Simply Investing are time tested and designed to keep you from making mistakes, investing really can be this simple!

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Showing 15 comments
  • Money Ahoy

    These are some great investment tips to keep yourself grounded in reality. It helps to focus you on realistic long-term plays with lower risk and a better chance for overall success. Thanks!

  • Michael Tsouroupakis

    Great tips, keep up the great work. Thanks

  • Lee

    Very good investment criteria. Your P/E’s and B/V’s are a little more flexible than mine. I also like to keep an eye on a company’s Current Ratio.

    • William

      Isn’t the information provided by the Current Ratio covered by looking at rule #9, “Does the company have a good credit rating?”

      • Kanwal Sarai

        Hi William, Great question. Yes the long-term debt ratio (in rule #8) is also covered in rule #9. But the S&P Credit Rating goes much further:

        “A credit rating is an evaluation of the credit risk of a prospective debtor (an individual, a business, company or a government), predicting their ability to pay back the debt, and an implicit forecast of the likelihood of the debtor defaulting. The credit rating represents an evaluation of a credit rating agency of the qualitative and quantitative information for the prospective debtor, including information provided by the prospective debtor and other non-public information obtained by the credit rating agency’s analysts.”

        Therefore S&P is looking at much more than than just the debt ratio. With Rule #9 I’m covering all my bases.

  • bianca

    what a great introduction!

  • Tom

    I really like these rules that you have created. I’m new to investing and I think you’ve created a great guide for stock selecting.

    I just have one question, I’m having trouble finding S&P credit ratings for companies that come up as undervalued using the 12 Rules. Do you have a preferred website for finding credit rating info? I’ve tried Google/Yahoo finance, MSN Money, and a few others.

    • Kanwal Sarai

      Hi Tom,

      The S&P ratings are available free of charge directly from their website (you will have to create a free account to access the ratings). Keep in mind not all companies have S&P ratings. Companies have to make a request to S&P to get rated.

  • Rakshith

    Hi Kanwal,
    You have written wonderful article which has helped me to understand how to evaluate stock based on the 12 principles. Do you support Indian market ??

    • Kanwal Sarai

      Unfortunately I do not cover the Indian market, however the 12 Rules of Simply Investing can be applied to Indian stocks.

  • Lisbon Wilder

    This is a blessing and really easy to follow along.

  • Mzamo


    What if the company’s history shows that the company share price has slumped, however the PE ratio shows to be more than 25, does that means the expectations about the company are that the company share price Will rapidly grow?

    • Kanwal Sarai

      Difficult to say by just looking at the PE ratio, you have have to apply all 12 Rules to see if the company is worth buying. I generally avoid companies with high PE ratios.

  • Vivek krishnamurthy

    It was nice for me to come across this article on stock picking. Thanks for your help. The rule 11a says if the P/E ratio is less than 25 that stock could be undervalued. I am curious to know how you arrived at 25. What if the industry average is trading at much higher ratio than 25?

    • Kanwal Sarai

      Hi Vivek,
      P/E of less than 25 is general rule, but as you pointed out if the industry average is different, then I would suggest looking for companies trading below their industry average. I came up with 25 after researching numerous books on the topic of value investing, and looking at long-term averages.

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