Over the years, those who have been successful investors have found that certain principles work most of the time. The following are investing principles you may want to consider when building your investment portfolio (the securities you hold).

• Don't invest your money in anything you don't fully understand. Do you have a favorite restaurant chain or a product that you can't live without? Have you just found a new product that you think is wonderful? If you are pleased with the product, you might be pleased with the company's stock. Go to the library and investigate it in Value Line Investment Surveyto get more details on the company's financial strength, the stock's price stability, their other products, exposure to world markets, dividends, safety rating, and projections of future growth. Order the prospectus and annual report and investigate the investment thoroughly before you invest.

• Invest equal sums at regular intervals, regardless of the market conditions. This is also called dollar cost averaging. Your set amount will buy more shares when the prices are down and fewer when the prices are high. When you average the cost of your shares over time, you will find that this method results in more shares at a lower average price per share.

• Reinvest your dividends and capital gains. If you are in a dividend reinvestment plan (DRIP), it is the easiest and least expensive way to gain new stock. By taking advantage of the direct investment plan you can purchase additional shares of stock directly from the company without paying brokerage fees.

• Buy for the long term. Don't try to time the markets. Market prices go up as well as down. Be prepared to keep your money in for the long haul, at least five years, and ignore the temporary ups and downs in the stock market. Trying to second-guess the market is about as sure as betting on a horse race. Over the long term, sound investments will increase in value; dividends should increase, the price may go up, and the stock may split, giving you more shares.

• Diversify your investments. Different investments perform differently under the same market conditions; when one stock or fund is down, others may be up. A well-diversified portfolio will contain investments that will perform differently under the same conditions, so no matter what changes happen in the market, you will still make money. You are diversifying when you choose stocks from several industries or a mutual fund that is balanced (contains a mixture of stocks and bonds). Another way to diversify is to invest in stocks and mutual funds with international exposure. Foreign markets don't always move the same way that U.S. markets do. A carefully chosen, diversified portfolio will show more gains than losses over time.

• Buy low. If you are buying groceries, you would buy things when they are on sale to get the best value for your money. The same is true for buying stocks and mutual funds. Because of the volatility and cyclical nature of the market you should avoid buying something when it is very high-priced. If you buy when the price is near its 52-week high you may not make much, if any, profit before the price falls, and you won't be able to buy as many shares. If you have investigated the company and feel it is sound and has good growth potential, the time to buy it is when the price is low (called a depressed market). This is, however, psychologically harder to do with equities than with groceries. Remember, you are buying the company, not the market.

• Sell high. Many investors pre-determine a target price at which they will sell their stock or mutual fund. Ideally, you buy equities when they are not popular and sell when everyone else wants them. This is referred to as being a contrarian. Avoid the temptation to time the market. Some people feel that it's time to sell if they wouldn't buy the stock when it reaches a high price.

• Check the P/E ratio. Price to earnings ratio is the price of a share of stock divided by the corporation's earnings per share over the past 12 months. The P/E ratio is a major consideration in selecting a stock. Some stocks, such as utilities, normally have a P/E below 10. Companies with high (over 25) P/Es can be fast-growing new companies or poor investments. Only careful investigation will reveal the answer.

  A recent study by the New York Stock Exchange compared the growth of a group of stocks with the 10 percent highest P/E ratios and the 10 percent lowest P/Es since 1963. They found that every dollar invested in stock with the highest P/E grew to $20, whereas every dollar invested in the 10 percent with the lowest P/Es grew to more than $120. That's a six to one difference!

• Be patient, don't panic. Your investment results are best evaluated over a period of years, not just a few weeks or months. Taxes and high sales commissions can offset capital gains if you hold the investment for only a short time. When in doubt, hang on.

  Historically, corporate profits have grown at about 8 percent per year, along with a 3 percent dividend yield. This accounts for an average annual return of 11 percent for stock. Even with market corrections, stock still tends to outperform bonds for patient investors.

• Figure profits and losses (return) in percentages, not dollars. If you have a $25 stock that goes up $5 and a $10 stock that goes up $3, which one made the greatest profit? The $20 stock went up 20 percent (5 / 25 = 20 percent) while the $10 stock went up 30 percent (3 / 10 = 30 percent).

• Match capital gains with capital losses on your income tax return. Nobody likes to have a loss on their investment, but losses do occur. With careful planning, a capital loss can offset a capital gain on a dollar-for-dollar basis. In addition, when your losses for the year exceed your capital gains, up to $3,000 of the excess loss can be deducted against other income. The rest of the losses can be carried forward until they are used up.

Compare stocks from the same industry sector and mutual funds of the same type from different companies before deciding. Use the Comparing Similar Stocks and Comparing Mutual Funds worksheets as a guide for comparing equities.