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*Investing
*WORK IN PROGRESS*

Let me mention upfront: If you believe in delegating all your investing or believe that stocks are too risky, you might just about stop reading this.
I believe in taking responsibility in your own investment and blame no other for your mistakes (and successes).
Stocks too risky? Well, as the wise people of the Motley Fool put it once: "the least recognized risk is to not take enough risk".
Not taking enough risk will gurantee you mediocre investment returns.

People today work in companies, spend their whole day toiling away there, giving them their energy.
Companies produce profit and flourish and need... money as blood to do it. The money come from stocks, which shareholder provide the funding for.
When you look at the stock indexes over the last 100 years, you will find that there is nothing as profitable, while at the same time being understandable without a degree in higher math and finance, than stocks.

 

I have some simple rules for investing and so far they have worked for me. They might also work for you, but everybody is different and there is no "one size fits all" in investing.

Brownies rule 1: Don't invest in what you don't know
Don't have any clue about Technology? Don't invest in hotshot tech stocks.
Don't know how a company makes it's money? Maybe you should not fund it then.
Have no idea how options work, or only vaguely? Well, don't do them then!
Too many people dabble in exotic financial instruments which they really don't understand that much. Many times it is a nice pretense of banks and brokers to charge extra fees and commissions for a thing that is not sure to deliver (to you that is, it will surely deliver to the bank, hence the fees)

Brownies rule 2:  Simplicity is king.
Which brings me to rule 2: People don't believe in a simple world anymore, a fact that brokers and banks know how to capitalize on. Financial products need to be fancy, branded and flashy. There is a handsome fee of course, "..but that is only a small thing for the huge" (almost) "guranteed returns you will have..." tells you the nice prospectus about it.
Do you know how great a stinking simple stock index fund can be? Owning a little part of every company in the S&P 500? Management fee? For WHAT management?

The coolest thing: although the returns are not stellar, it might bring in about 7% annually, on average, returns reinvested and you can watch what you have made (or lost) every day on TV or elsewhere while watching the S&P 500 index.


Brownies rule 3: Keep up to date on your investments
Since you are an owner of a company, you should watch and pay attention what they are doing with your money. Have the become lazy, innovation just a buzzword and full of management that plays defense on their fancy positions while not providing much benefit for the company anymore? Well, maybe your cash should support a more eager and brilliant corp.


Brownies rule 4: Don't play the stockmarket
It is not a gamble. If you love gambling, buy a lottery ticket or go to a casino.
Unlike what some people tell you, there are way to reduce risk and read up on companies and how and WHY they are successful and why their stock will win in the end.
There is no way to reduce risk in gambling, i.e. there is no way to improve your odds and progress your profit making ability through learning. You might hit the jackpot or never do it at all. No matter what you do, it will always be that unpredictable. In investing, money (and lots of it) is made every day (or lets say, every 10 years) by buying into companies that you believe are a great prospect (or let's say, KNOW, since you have done your homework) and then went up when the crowd (much less visionary, just caring about their fast profit) jumped on the bandwagon.

Brownies rule 5: Great things can come cheap or free
Any investment consultant will tell you that great information that makes tons of money will not come cheap.
But he probably makes his money by peddling this. The internet today has a gigantic amount of free information for investors.
It is just amazing what you can find out about a company with finance.yahoo.com.

Brownies rule 6: Who is making money with what?
A nice guy giving you a "tip", a insider secret will often confess that he does this out of the goodness of his heart and makes no money off it.
But is it always wise to ask, in any business relationship: What does the other party get out of it? Nobody works for free and when you cannot see their source of income, it might very well conflict with yours. (that is the reason why they hide it)
Example: A stock broker that makes money off every trade you do. Does he get payed for giving you good advice that will make you rich? Maybe. But surely, he gets payed for you doing trades. He has basically no direct interest that you do well, as long as you buy and sell.
It can be profitable to pay for an investment newsletter, if their ability getting the newsletter sold is directly connected to the quality of information and success of investors reading it.
Otherwise people will walk away, since it is not worth it.
If there is too much marketing and "cool shiny selling" involved, it might be that the product needs a lot of pushing because otherwise it will not sell or is totally without content.
People always do things for very good reasons. Find out these reasons and you will see if there is benefit for you too in it.
A bank will probably not point out their index fund, that is cheap and unmanaged, if they can push some fancy expensive instrument on you.


Brownies rule 7: Take responsiblity
We are kids no longer. Yet, how many times we point a finger and blame somebody else? Well, take responsiblity in your own actions, since you are the one will get stuck with the problems in the end. Also, it is a great feeling of standing on your own feet and "charting your own course". You will also not have anybody else to thank for it.
If you know that everything that you currently suffer from or are blessed with is of your own doing or inability to do, things get much easier...
This is also true of investing. It is your money, if you follow the advice of somebody else, check this information for validity. Does it make sense to you?

Brownies rule 8: Focus
1 square feet of sunlight warms the floor slighly. If you install a lens and focus all that light on one spot, you can drill a hole.
This is so in all areas of life. I have therefore always focused on stocks and tried (and am still working on it) to become the very best in it. If one tries to understand all investment instruments, you might end up being jack of all trades, master of none.
I guess it appeals to people when the "newest thing" is out, some new way to make an obscene amount of money with no effort (which appeals to the lazy folks, which think that working hard/smart is an affliction ;-)
Only dish detergent and Windows operating systems are "new and improved" everytime they are released. These things want to make you believe that there is no gradual improvement of products, but totally new and revolutionary ideas that "must be had RIGHT NOW". Often it is not that great at all, but just a lot of marketing mumbo jumbo.



[point to the motley fool]


this document was created on:
27. Feb. 2007
updated on:
27. Feb. 2007