Thursday, June 22, 2017

3 Rules To Become A Better Investor

From Wikimedia

Learning to manage your money well, and develop an investment portfolio, can be a very difficult task. For many people, it’s simply about not having the time or resources to learn about all the different investment factors that they need to. For others, it’s more to do with their temperament and emotions. Though effective investment is never easy, there are certain rules you can follow to make yourself a better investor…
Keep Away from What You Don’t Understand
Many people find themselves investing in assets that they have very little understanding of, and wind up regretting the decision further down the line. Remember that there’s no specific kind of investment that you should be focussing all your energy on, regardless of what you may have heard elsewhere. If you’re given a tip on stocks for a company dealing with geospatial data, or genetic therapy, it might be a great lead. However, unless you’re prepared to put the time in to thoroughly understand these niches, it’s best to play it safe, and stick to industries and businesses you’re fairly familiar with. If the person who’ll be handling your investment can’t understand the underlying thesis – where and how the capital will be generated, and how that money will ultimately make it back to your pocket, then it’s usually best to walk away.
Don’t Concentrate Too Much on Performance, and Not Enough on Risk Exposure
Again, it’s a very worrying sign when brokers and similar professionals talk about the great returns you could be getting, without going into how those returns are generated. The risk that you’ll expose your capital to, measured in price paid relative to the intrinsic value of an investment, with an adjustment for the potential for failure, is the real thing you should be looking at when looking to build wealth. This holds true not only when you’re building a portfolio as a private investor, but in the management of entire companies. As a rule of thumb, make sure you’re only buying stocks or bonds which you’d be happy to hold onto for five years, even if the stock market closed and you wouldn’t be able to get a quoted, trustworthy valuation on it.
Get into the Habit of Thinking About Net Present Value

For any investor, net present purchasing power is a major contributing factor to their success. Don’t fall into the common bad habit of thinking in nominal currency. If you’ve got $100 cash in your wallet, the value of that paper depends on a number of different factors. If you’ve got enough time and you can earn decent rates of return, then compounding will run its course and turn it into $10,000. Smart investing is all about making smart choices. Start getting into the habit of framing all your spending and investing choices in this mindset. Remembering that money is a tool, and nothing more, can help you avoid one of the biggest investing mistakes there is: sacrificing significant, long-term desires for their less substantial, short-term wants.

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