Getting Started In Investing

 

Getting started in capital and money market

Investing Basics

Investing refers to the accumulation of some kind of asset in hopes of getting a future return from it. There are several different ways you can invest your money (see other parts of this websites that relates to investing). You can invest in a bond, which is exchanging money for a promise of more money in the future. You could also invest in a capital investment, which is the exchange of money by a business for an addition to their ability to produce. No matter what you decide to invest in, the fundamentals are the same. You are basically buying risk. the more risk you take on, the higher price you can sell it for. That's basically what all investing boils down to. As an investor you are really becoming a risk manager.

Investing Tips

The number one tip is to invest wisely, do some research to figure out what kinds of questions you should be asking. A few common sense questions would be those that evaluate the background of the brokerage firm or individual banker with whom you intend to do business with, before you hand over your money.

It is also important to evaluate the firms history, how stable it is, etc. because if the firm goes out of business chances are you might not be able to recover your money.

A good place to start figuring out what questions to ask of your broker. Make sure to take notes when you ask your questions and write down the answers that you received, this shows the broker that you are a serious investor. Its important to consider that, as a beginner in the investment world, you are sure to make mistakes. Everyone does, but its your ability to learn from these mistakes that will give you the experience necessary to carry on and improve your results. The only logical way to learn from your mistakes is to write down everything you do, and evaluate it thoroughly. This way you will be able to acknowledge what mistakes you make, and help you avoid repeating them.

Bad Investments

Investors loses quite a lot annually. For the most part, they make the same mistakes over and over again. Law enforcement has no interest in helping you recover your stolen money. In fact, law enforcement only acts on about 10% of the complaints that are filed by defrauded investors. Here are seven simply ways that investors lose money every month.

1. You should never invest in a company based solely upon an oral presentation. What you hear is never what you get. In fact, if you hear something and check upon it and discover it's false, the presenter denies ever having made the statement. The oral sales pitch is the favorite tool of swindlers.

2. You must investigate a written business plan. Over 80% of the business plans you review will have at least one major misstatement of material fact in them. Often business plans are a tissue of lies whose sole purpose is to separate you from your money. If you find one or more lies, don't invest.

3. Investing in startup or early stage companies is betting against the odds. Your odds of your company surviving five years are about 1-in-100. If it survives and makes money, your average return on investment is about tenfold. Bet on enough of these startup and early stage companies and you can retire to the poorhouse.

4. Companies with a great deal of long term debt are losers. Sadly, most of the investors don't realize that there is no way they can recover their risk capital. Putting more money into this company is throwing money away.

5. Betting that engineering management will make a business profitable is rarely a good bet. Engineers focus on improving the product's technology and not on selling the product. From an engineering viewpoint, the product is never good enough for the market. Consider Bill Gates, he purchased DOS from its software developers and SOLD it to IBM as their PC operational software. It wasn't the best available software at the time. He then hired engineers to constantly upgrade DOS and develop all the other software programs that have become Microsoft. Contrary to what you learned as a child, if you build a better mousetrap, people will not beat a path to your door. Produces and services must be sold and Mr. Gates was a good salesperson.

6. Never take stock in a private company for your cash. Insist upon an equity position. If the company is a startup or early stage company, you want at least half of the company for your money. If the company has income, your money should convert into an equity position based upon the business value of the company against the funds you are risking upon its expansion. Remember that you don't need the company. The company needs your money. Make your investment based upon this reality.

7. Don't throw good money after bad money. If your gamble failed, don't send the company more money in the hopes of turning your bad investment into a good investment. It's like trying to turn a cow's ear into a silk purse. Only a miracle will make your monetary effort a success. And, miracles rarely happen in business.

There are forty or fifty common investment errors. The above seven mistakes occur almost weekly. These mistakes are not limited to a few people but money managers, professional investors and bankers have made all of these bad investments.

I think the best training for investors is to learn to play Poker. The card game teaches you how to read people and how to evaluate the odds. Any time that you regularly bet against the odds, you must lose your money over time. If you can't spot the swindlers, you will be spending a lot of time and money doing Due Diligence to learn that swindlers are making about 80% of the business investment offers. 

Before you invest, play Devil's Advocate. Find out what is wrong with the deal and you will save yourself a lot of grief. An ounce of prevention is worth several pounds of cure.

Investment Strategies for Novices

With so many options available, novices might think that investment is just a matter of choice. But in reality, making the ‘right’ investment choice is the core of making intelligent investment. So what should be the investing strategies for novices?

Asset allocation is one of the first investment strategies that should be learnt. It is the way in which you divide your investment portfolio: stocks, bonds, money markets, real estate etc. This can boost your potential returns and ensure long-term investment success. It can also help you channel your investments. Asset allocation also helps you lower your investment risks, without diluting your investment goals.

As a first-time investor, you must also include the time frame and tolerance for risk in your strategy because your choice of investments depends upon these two factors. You must remember that every instrument has its own risk value.

Stocks are known to fluctuate frequently in value, carry a high level of market risk over the short term, earn high returns and normally outpace inflation. Bonds on the other hand have less severe short-term price fluctuations and therefore offer much lower market risk. Money market instruments are the most stable of all asset classes in terms of returns. They carry relatively low market risk but lack the potential to outpace inflation.

Diversification should be another part of your investment strategy. When you diversify your investments you reduce the risk level. It also helps you balance a fall in the value of one instrument with gain in the value of another. Finally, you must plan for the long-term. The investors who benefit most are those who limit their short-term investments, and focus on long-term gains.


 

To be continued......