Why is it that investing is such a scary topic, especially for women?
It has this air of darkness, complexity and risk associated with it that makes people shove their heads deep into the sand and fearfully proclaim “Investing is not for me”.
While we all know there is risk involved in investing, the levels of risk vary a LOT depending on the investment you choose and the state of the general market and economy.
What a lot of people don’t realise is that even keeping money stashed in cash can be risky because inflation can erode its value over time making this a slowly losing investment.
Yes ‘cash’ is still and investment!
For me investing is in my blood!
After years of working on the trading floors of investment banks, trading my own money and taking stakes in several companies I can’t help but see opportunity everywhere.
People often ask me how I do it. In fact at times people have thought I was a little mad and couldn’t see what I could see until much later. Usually by the time everyone else has caught on I am no longer a buyer and in fact might even have turned seller!
I learned this skill over years of fast and furious trading in sometimes crazy markets. When you spend years that close to the coalface of markets day in day out you learn to recognize the teeny tiny nuances that indicate the tide might be turning. If you’re any good you watch for these little signals and then capitalize quickly before anyone else does.
Is it skill or is it art?
The truth is it takes a good bit of both.
I started thinking this week about how I could impart some of my investment experience onto you to demystify investing so you can feel a bit more comfortable with it and maybe a bit more curious to learn more.
So I thought long and hard, made endless lists of ideas before distilling it all down into 3 crucial keys I think you need to be a kickass investor ……
Because let’s face it, what other kind of investor do you really want to be?
3 Keys to Being a Kickass Investor
1) Understand The Bigger Picture
Do you remember all those economic lessons at school that bored you to tears because you just couldn’t see the relevance for you and your passions?
Well it’s time to root out all those old text books again because macro economics is absolutely vital to understand if you want to be a great investor.
In particular, understanding the price and flow of money and how it impacts asset markets, business cycles and human psychology is a great skill to have. It gives you a serious edge in seeing what might be coming down the tracks before you invest in some seemingly magnificent idea or indeed before you make that big business decision.
Understanding the operating environment you are working with regardless of the valuation of a company, property or other investment might just save your bacon later on!
2) The Numbers Have To Work (Not Massaged to Work!)
Put simply if the price of money (i.e. the interest rate) is 5% then the return on investment (ROI) you need to get on any investment you make must be higher than that to make it worth your while.
Sounds simple I know but ROI is made up of income and capital growth and all manner of wild assumptions can go into income and capital growth projections. A classic example is in the property markets. Sometimes people are prepared to borrow money at 5% to invest in a property with a rental yield (income) of 2% because they are expecting a doubling of house prices so the capital gain will make the investment pay off.
However although many the world over believe that property prices double every 7-10 years, many more have since lost their entire fortune by leveraging themselves up to their eyeballs on this assumption.
Be wary of your assumptions and great investment sales pitches!
Your ROI assumptions need to be tempered by your personal ability to handle the ‘What if it goes the other direction’ question. If the answer to this question is ‘I would be wiped out financially’ then this is where you make your decision to invest or not from – not from the blue sky, I’m gonna be rich valuation of the investment.
The are only 3 things you are guaranteed of with investing:
- Markets go up
- Markets go down
- Markets go sideways.
Make sure you do some analysis for all three of these scenarios and don’t just assume only one outcome is possible – markets going up!
3) Recognise The Art
It is often said that investing is part art part science.
Many heavy duty logical left brainer thinkers have been destroyed in the markets because of their inability to accept there is more to it than endless spreadsheets and financial modeling.
With investing you need to remain in flow and open to being completely wrong even though all of your big picture analysis and number crunching might be right. My own personal mantra to remember this is:
‘Remember you can be wrong for a long time before you are right”
or as the famous Economist John Maynard Keynes put it:
“The market can remain irrational longer than you can remain solvent”
It’s so hard to admit when we are wrong, when all of our work, analysis and beliefs get laughed at by a crazy, irrational market but it happens ….. constantly !
The trick to managing this ‘Art’ piece of the puzzle is to take the emotional decision making away and have a set of personal investing rules that you stick to and automate if you can.
For example, I like to trade stocks and derivatives but I also don’t want to lose my skirt so risk management is something I spend a lot of time on. I have rules in place for when I need to cut my losses, like a certain % fall in price, a certain level of volume traded or a big area of previous price support being broken. I set automatic sell triggers at those levels so I don’t have the ability to let my emotions or own ego get in the way. It’s part of my trade plan before I ever make a trade.
It’s a bit harder with stickier assets like property, land or private companies of course but you still have the have your ‘What if plan’ ready.
Similarly when you are on a winning streak with an investment should you let it run?
My personal opinion is yes but with steps. Another mantra of mine on this is:
‘You will never go broke taking a profit’
So many people get greedy when they start to win and never think to shave some profit as an investment starts to go well. You don’t’ have to sell all of it but maybe it’s a good idea to take some profit along the way and redeploy it into other assets or just bank it and be happy!
If you want to go deeper into all of this I will be devoting an entire module to this in my soon to be launched Get Savvy Academy training program so be sure to sign up so you will be the first to hear about it once it launches.
Got something to add?