So, you have decided that you are ready to take the next step. You are going from a part-time, ‘let’s see how this goes’ attempt at investing, to a major-league, leave no investment behind attitude. Good for you. Let’s look at how you can take your investment game to the next-level, so you can start reaping the benefits.
No Brainers
Have a plan. You don’t want to end up 6 months down the road in the wilds, mumbling about diversification and Bitcoin. Write it down on your phone, a whiteboard, heck tattoo on yourself if you have to. Just make one, stick to it, and update as needed. The most successful investors, and people in life all had a plan and stuck to it. You want to be like them? You need a plan.
Another thing you should be doing is maintaining some sort of emergency fund. Markets can be volatile places, and having a little liquid cash to back yourself up during unforeseen circumstances is a must. Costs of healthcare, education, car repairs, can all easily reach into the thousands of dollars. Having liquid assets, that is capital that is not tied up in credit cards or debt, can get you through the rough patches, so you can keep investing later.
Lastly, there comes a time when you have to decide between whether you are looking at a potential goldmine, or something is too good to be true. It’s always a bad idea to put all your eggs in one basket, so don’t sink your life savings into an investment you have trouble wrapping your head around. Use a little common sense before you put your money down.
Secret Weapons
Let’s talk about Margin of Safety. In short, the Margin of Safety is the difference between the market price of an asset and what you believe it’s intrinsic value to be. For example, say the price of apples on Thursday was $5 a bushel. However, you know that for the past two weeks apples have been selling at $10 a bushel. That $5 difference is your Margin of Safety, Thursday’s price being lower than what the intrinsic value of a bushel of apples is. You basically want every investment you make to have some Margin of Safety, as you will minimize loss and increase your chance for profit. The term was coined by Benjamin Graham who was an investing mentor to none other than Warren Buffet, so yeah, might be a good idea to take it seriously.
Another pro tip from Benjamin Graham is to embrace the volatility. There will be times when it appears your investments are losing steam. Instead of jumping ship or lamenting the cold nature of the universe, look at times of low growth as opportunities to invest in other areas that might pick up once the markets recover. And the markets will recover. They always do, just like they go back down. Embrace it.
Part of that means becoming an active investor. If you want to really make money on the stock markets, you have to get your hands dirty. While the old adage risk = return can be true, the idea of work = return is much more foolproof. That means doing your research on companies, and being more ready to pull the trigger on a risky investment.
Follow the Rules (Just a Little)
As great as it looked to be the Wolf of Wall Street, let’s remember he got caught, and paid a large price. In fact, pretty much everyone who cheats the system at one point or another runs out of luck. That’s why if you are serious about investing you should be serious about following the law to the best of your ability. Knowing a bit about the penalties surrounding excessive trading, how to look out for unreliable stockbrokers, and insider trading laws will help you later down the line. It is common sense and can save you money. All the top investors in the world made their fortunes legally, and the average investor just wants to make his money work for him. If you want to bend the rules, be a 21st century investment cowboy then be my guest, but just don’t be surprised when the Feds come knocking.
Wrap Up
Becoming the investor you always wanted to be takes a bit of work. However, if you are willing to put in some work, take some risks, and follow these guidelines, you will be well on your way to financial success.