Have you ever stepped back to think about what you’re doing when you decide to invest?
In its simplest form, you’re choosing to own a product. It could be a house, it could be part ownership in a business or it could be something tangible, like gold. In any case, you’re making a conscious decision to buy something with the goal of earning more money in the future.
But how often do you buy investments with an ownership mindset?
Do you buy the latest craze? How much research have you done? Would you be willing to own it for more than a month? Year? Several years?
I’d argue the best investors look and seek out opportunities differently.
I believe the best way to invest is by approaching investing decisions as if you were an entrepreneur. Why? Entrepreneurs do two things differently: they use their expertise to their advantage, and they look for long-term opportunities.
The best way to invest is by understanding the business or investment you’re making
You would never go into a business unless you knew how you were going to make money. You’d clearly know how you earned money, how you spent it, and what risks might pop up. The same thing goes with investing.
Too often people are trapped chasing higher returns. In doing so, they find themselves in products or sectors of business they don’t fully comprehend. For a while, it seems exciting as your portfolio takes off but it can catch up with you, especially if your investments turn sour.
That’s what happened in the financial crisis in 2008/2009. No one complained as portfolios rose to record highs, but a lot of people didn’t understand how exposed they were. Eventually, the “gains” they made earlier were wiped clean when the crisis hit.
Successful investors at the very minimum understand the basics of their investments, and more often than not, successful investors use their background and interests as a competitive advantage. Because they know more than the average Joe in a particular area of business, they can naturally differentiate between the “next shiny object” and a “real gem.” This skill isn’t limited to the “financial elite” – just about everyone has some sort of personal experience that can give them an investing edge.
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The best way to invest is by owning it for a long time
Most entrepreneurs don’t start a business intending to sell it 2 weeks later. It takes time to get a stable company off the ground. Entrepreneurs invest the time and work through challenges they encounter because they believe in the quality of their business, and its future outlook. Investors should have the same mindset. If you’re looking to make a quick buck, you’re not investing. I’d argue you’re semi-gambling.
Nothing is bullet-proof. We all want to buy low and sell high, but timing the market is difficult to do by even the most seasoned professionals… and yet many people still try to do so!
Recent years have shown political changes, technology advancements and even environmental catastrophes can and do happen… all of these factors can shake the market. That being said, nothing beats buying and holding a sound investment over a long period of time. If the investment has strong fundamentals (manages cash well, has a strong leadership team, and can manage its risk), downturns are your friend (buy more when it’s on sale!) and you can ride the wave to higher profits in the future. Ask Warren Buffet… the investing legend often quotes that his ideal time to hold a stock is forever!
“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years…If you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes” — Warren Buffett
SWP Action Steps
I challenge you to took re-look at your investments as an owner. Ask questions you may have typically never asked: Do you understand your investments? Are you set up well for the long-term? Can you do anything differently?
If you don’t know – ask! 30 years ago it may have been drastically different, and sound financial education and information were limited to an elite few. Today, there’s lots of excellent research online, and certainly a ton of great professionals out there to help. In today’s day and age, there’s no excuse for being uninformed.
Think it through
- How many of your investments do you fully understand? What can you do to learn more about the industries you invest in to be better educated?
- What areas do you have special knowledge in (from work, hobbies or special interest) that you can capitalize on for future investing?
- Is there a cause you are passionate about that could create future investment opportunities?
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