Making sound investment decisions - good investment management
When was the last time you made a sound investment or are you a speculator? Did you go to your broker and buy a fist full of shares? Did someone tell you they are of good value and the price will go up some more? Did someone else tell you not to buy those shares as it’s already climbed too much and chance are that the price will not climb anymore? Are you making investment decisions or speculating based upon someone's hearsay? Could you see where the market was going, to make that investment or speculative decision to purchase those shares? You were in a situation where you were getting conflicting information but you yourself did not have enough knowledge to make the decision yourself.
Similarities between driving and making sound investment
It’s like driving your car blindfolded. Just for a moment, shut your eyes and imagine how you would drive. You wouldn’t know when and where to turn or to turn right or left. You wouldn’t know how fast you are going and you wouldn’t know if you are about to hit that bus in front of you. Take a moment and just close your eyes and pretend you are driving out of your office or your house. You wouldn’t know even where to begin, right? Just like trying to make that sound investment decisions.
Now imagine, while you are blindfolded, that your mother-in-law is in the back seat and she is telling you to turn left. You feel you need to obey her but just as you are about to do her bidding your wife, sitting in the passenger seat next to you ,tells you to turn right. What do you do? Turn left or turn right? Imagine doing that with your own real money. If you had enough information of where you are currently and where you wanted to go to, you wouldn’t need to listen to both of them. Is this good investment management? As with investment or speculation, if you could make your own sound investment decisions, then you wouldn’t need to listen to rumours, you wouldn't need to listen to self-proclaimed consultants, you wouldn’t need to listen to marketing hype. Now remove that blindfold and look at that street map on your lap. It shows you where you want to get to and it shows you where you are, right? Driving is much easier when you read your own map, isn’t it? (see also http://www.drpetersnews.com/how-to-predict-market-trends.php )
Likewise, in life and with investments you need a map to make your own informed decisions. It’s easier that way.
Essentials of Investing and making sound investment decisions
Everyone wants to make some more money. They know that costs will go up every year but their salaries may not. There are many options available provide you have the time, the capital and the knowledge or skill. Mostly you need to determine the investment capital you have.
1) Start your own business.
The first thing that comes to mind for someone who has a windfall is to start their own business. Many think this is a sound investment decision as they are the decision makers and not a third party. But you may end up learning the hard way that a lot of skill and knowledge about running a business cannot be found in books. You can compensate for this by hiring experienced personnel and have excess capital to throw at your business problems. If you do have a lot of capital this is the best choice as the returns can be very great for the risk you are taking. In fact it could easily be a few hundred to a few thousand percent per year of the capital you put down. Unfortunately the risks are quite high. You can be wiped out in a few months and have to start all over again, penniless. The time and energy and effort can be considerable when you begin your own business and many begin business without knowing their market. So it’s a choice that few people can afford to make. This option is not a good investment decision for many people.
2) An alternative small business with limited investment capital
An alternative would be to start with a little capital as small as RM500/- (USD$1,50) invested in a direct selling, multi-level or similar business. Build your immediate down line fast and let your own down line take over. But that is another story. This option can be good investment decision if you have a day job that covers your monthly expenses and leaves with extra change to spare.
3) Saving Money in the Bank.
This is the safest method except during a severe recession or a depression (more about recessions later) when banks can close and your hard earned & saved money is gone. Furthermore, today the interest rates are very low. But there is one very important feature of savings in a bank. That is Cash is King. Especially during an economic slowdown or a recession property prices can drop as much as 30% or more and if you have the cash to purchase them outright the return on investment can be good when prices recover. During a recession shares are cheap and if you had the cash to purchase them you would be in a position to reap very good rewards within one or two years when markets recover. Saving money in the bank is a good investment decision when the economy is booming but you may find better returns else where. If you have plenty of cash in the bank this can be a dubious investment decision.
4) Investing in Bonds.
I will tell you my real life experience. When I was working as a Unit Trust agent many years ago, I had a client who was interested in investing but was dead scared of losing her hard earned money. She was earning about RM3,000/- (USD$900/-) per month and wanted to set aside about a RM1000 (USD$300/-) every month in something that pays better then bank fixed deposits or savings. So I signed her up for an investment in a Bond Package in one of the Unit Trust. Then, the interest rates were as high as 8% to 10%. This was a compounded scheme where the interest earned was used to purchase more bond units. The advantage was that there was no income tax on the interest earned as the bonds were purchased through a Unit Trust Scheme. I didn’t earn any commission out of this deal as, those days, there was no commission for selling bonds, only commission for selling equities. For me it was not about earning money but to go through the exercise of getting people to invest, who knows she may recommend me someone else someday …. I’m still waiting. I will tell you more about her plan another day – the reason why I put her on to bonds. I had a longer term plan for her which I thought made this a good investment decision. If you cannot stomach risk then saving in bonds can be a good investment decision.
5) Investing in Unit Trusts and other fund managers
If you know absolutely nothing about investing please do invest through a Unit Trust Scheme. They have the ability to turn your cash investment into profits but many a time the returns are moderate at best. And from my experience there will be some years when they made a profit for you and some years when they lost some of your money. There is nothing spectacular about their performances. I have my reservations about this as I have seen unit trust agents keep promoting the "Buy, buy buy" mantra whatever the market conditions.
6) Stock Market investment or speculation
If you have gone through the experience of getting burnt and losing money on the stock market and figured out some of the essentials of investing and speculating then do make some investments in the stock market directly as when times are good the returns are good. When times are bad the returns can be bad. Finally, this is what you will figure out, there is a time to invest and there is a time to cash out. There is a time to sow and there is a time to harvest. When you have figured that out you probably will begin to treat the stock market or commodity trading as your own personal and private mint.
How do you begin to make sound investment decisions?
1) Put aside some money every month. Remember Cash is King. It does not matter how much you put aside as long as you do so from today. You need capital before you can make or learn to make good investment decisions. Without capital you cannot make any investment or speculative decisions.
2) Open a new account without access to an ATM card or so that you cannot easily spend the money. Leave the money there.
3) Every year buy some bonds with that money so that you will get better interest. That will force you to keep the money for a longer period.
4) Start looking at the stock market, look at the individual shares and begin to check their historical prices. Are they low or high. If they are high don’t be in a hurry to invest or speculate. If they are low check out why they are low. Go back through news paper cuttings and search on the internet or the Securities Commission’s website and other websites as to why the prices are low. Prices can be low because the company is in deep problems. Check with real estate agents if they are trying to sell off their assets. Talk to people investing heavily in the markets but beware there are people running schemes to trick you into purchasing shares so that they can get out with a profit.
5) Invest, make that investment decision or let it be a speculative decision but do it. Don't do it out of greed or else you will lose everything for sure. Don't make that investment decision out of fear or else you will not gain anything. If you don’t venture you don’t gain. If you don’t invest you don’t gain. If you don’t venture you have nothing to lose. If you don’t invest you have nothing to lose. Buy Low and Sell High. Everything is timing and price.
At the end of the day you are dealing with a financial system and need to know how the system works. If you do not know how the system works how do you think you will make good investment or speculative decisions?
Food for Thought about making sound investment decisions
I guess most people, deep in their hearts, would like to get rich. Some do it slowly and some do it quickly. And at the end of the day you will find most 'Get Rich Quick Schemes' do make somebody rich very quickly .... the originator of the scheme. The sad truth is that no one else benefits. There are important points to consider when you are trying to improve your status in life:-
1. Do you have a little capital or a lot of capital?
2. Do you have a stomach for risk? Let us reword that. If you lose everything, can you or will you be willing to start all over again? What is risk? Risk is the measure of the difficulty of attaining your goals. In life we all take risks and it is almost an everyday affair so don't be afraid of risk, learn how to manage the difficulties. You cannot manage risk but you can manage the difficulties that come with risk taking.
3. What type of return on investment are you looking at? 2%? 4%? 10%? 25%? 100%? 1000%? There is some correlation between risk and return on investment. 2% to 4% is very low risk and you just sit at home and wait as someone else is managing your funds. Where as 1000% or more requires much higher risk and you have to monitor and manage the risk every hour of every day, so it is a full time job in itself, which means you would have to quit your current job.
4. Does money mean everything to you? If it does, I think that you would have already considered a life of crime. If this is the case I would suggest that you reconsider the consequences, such as free room and meals at his majesty's pleasure.
5. What would you do if someone gave you $1,000,000? It may not be much by today's expenses given that many bungalows and apartments are around this price range. Would you buy a bungalow or an apartment and rent it out? Would you buy a small plot of agricultural land and rear some live stock and grow some cash crops? Would you purchase all the lottery tickets that you can get your hands on so that you can win the first price of $3,000,000/- ? Would you start your own restaurant? Would you purchase $1,000,000/- worth of shares or would you rather invest it with a fund manager? Or would you just keep it in the bank then life will be without headaches, just collect the interest and enjoy life? Investment decisions, investment decisions, investment decisions ... there is no end to the decisions.
6. What would you do if someone gave you $100,000/-? It is a lot less than $1,000,000 but it is still money. Difficult to get rich with $100,000? Many millionaires started with much less! Would you buy Gold and Silver?
7. Would you believe it, that it is possible to become rich and well off just by putting aside $100 to $1,000 every month? Do you know how to get rich with a little amount of money? After all if you are good for $100 than you are good for $1,000,000. Would you buy Gold and Silver or could you save the money in the bank? Or would you use that money to buy some property, that is use it to pay for a loan on a property? Is this a good idea?
Many of these approaches imply that you must have a source of revenue - a job. With monthly income you can put aside the excess, revenue less your expenditure, towards saving a nest egg. .... You don't have a job .... so you don't have a revenue ..... hhhhmmmm ... sell something for a profit and you will have cash flow and if you do that regularly every month you will have monthly income. You don't need a job and you are not your job. This is what I used to do when I didn't have a job - I sold silk ties and toys on the streets. Many of you may remember me, walking the streets with silk ties and toys in my hands. And that is how I funded some of my research - no hand outs, no scholarships, no grants, no loans, no investors, just plain old hard work.
One day I will teach you how to buy a house or any property without taking a loan. If you are lucky, I will teach you how to purchase a car without taking a loan. If you have no money then you will need patience. Patience is a virtue, all things come to those who have patience.
By the way did you make a good investment decision?
But Wait ... You thought you were insured and you insurance policy will cover your health bills, in times of crisis, right? OK, what do you do when your insurance company fails because they ran out of money. Has it happened before? They ran out of money because there were too many claims, more claims then they expected. There were too many claims because we are dying slowly. We are dying slowly because the crop in the field is now a slow acting poison. We are dying slowly because the food on the shelves is now a slow acting poison. What do you do? ... die ... slowly?
The world is entering a New State of Chaos, are you prepared? But you say that you have much cash money in the bank. What happens when the cash notes run out? It has happened before. People go to the ATM machines but there is no cash to withdraw even though their accounts show plenty of money. It has happened in some countries on a mass scale. What happens when the banks fail before you withdraw your money? It has happened before, many times.
Many farms have already failed and many more farms will fail, less and less crops will be grown for food and more and more will produce industrial chemicals. This is the trend and then food prices will soar. What happens when food prices begin to climb? In 2009, my chart showed wheat prices climbing by 2011, so bread, cakes, roti, buns, noodle ... prices will go up. Don't say I didn't warn you. By the way, why was there a shortage of sugar in Malaysia when world sugar prices have been falling. Someone was trying to hoard sugar in Malaysia to try to corner the market and monopolise the price of sugar but they could not see the price of sugar was falling in the world markets. Isn't that the truth? And that too has happened before.
But now it’s happening more and more frequently and many financial systems are failing simultaneously. Did I tell you that your investment decisions must provide a return on investment better than the rate of inflation? Are we entering the Armageddon phase of our history? Can we stop it? Can we protect ourselves before it is too late? Is it too late for you to make good investment decisions? Well, if you are on your death bed, it sure is too late to make good investment decisions.
Points to ponder on making good sound investments
How do you make a good investment decision? What is the right investment decision? Is there a right investment decision and a wrong investment decision? How do you get out of a bad investment decision fast? Are there clauses in the fine print? What is the single most important investment decision you need to make and execute?
- Dr. Peter Achutha, 17th June 2011