It would be wonderful if we could avoid the setbacks with timely exits, but nobody has figured out how to predict them.

Know what you own, and know why you own it.

The biggest winners are surprises to me, and takeovers are even more surprising. It takes years, not months, to produce big results.

The Rule of 72 is useful in determining how fast money will grow. Take the annual return from any investment, expressed as a percentage, and divide it into 72. The result is the number of years it will take to double your money.

A stock market decline is as routine as a January blizzard in Colorado. If you're prepared, it can't hurt you. A decline is a great opportunity to pick up the bargains left behind by investors who are fleeing the storm in panic.

There's no use diversifying into unknown companies just for the sake of diversity. A foolish diversity is the hobgoblin of small investors. That said, it isn't safe to own just one stock, because in spite of your best efforts, the one you choose might be the victim of unforeseen circumstances. In small portfolios, I'd be comfortable owning between three and ten stocks.

My method for picking stocks has never changed. When businesses go from crappy to semicrappy, there's money to be made.