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** 7 RULES FOR SMART INVESTING by Graham White**
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1. Invest What You
Can Afford To Lose: If you can't afford to lose what you're
investing, then you're not ready to invest. This is where the principle
of diversification comes from. If all of your money is in one investment
or asset and something happens to that investment, you've lost it all!
This principle applies to
loaning money as well. Even if it is for a friend or family member who
you love and trust, even if it is for a guaranteed return, invest what you can
afford to lose.
2. Invest In Areas
You Have Expertise: Expertise is a broad term. If there is a business that you frequent or airline that you fly that you are impressed with, you have expertise in that company. If you like and respect what they're doing, likely others will as well and the business will grow. I know the analysts make it seem like some kind of financial Jujitsu, but businesses do better when they're run better and lose money when they're not run well. If you see a well run company or opportunity, research it a little and if you like what you see, invest what you can afford to lose. If it begins doing things you think are bad business, take your money out. In the end, it is you that needs to have your own expertise. Don't simply follow the recommendations of an analyst, especially not one you see on TV and whatever you do, don't be a follower of trends - that's the sure way of always being at the tail end of the market and losing your
money.
If you don't understand the stock market, stay out.
If you don't understand the Real Estate market, stay out. If you don't
understand the business, don't invest your money into it. Giving your money to
someone you trust, whether that's your banker, your broker, or your brother to
invest on your behalf when you don't understand what they're doing with your
money is setting yourself up for disaster. The person who is making
decisions about what to do with your money is YOU! If you don't know,
then start to learn.
3. Study
Money: The only way you're going to learn more about money is by
studying how it works. Take some time, head to the bookstore and browse
through the books in the financial section until you find one that you find
interesting.
I'm not suggesting that you
make the study of money the focus of your life, but I strongly urge you to
overcome your ignorance through a process of education. Money is a
powerful tool if you understand it and put it to work for you instead of being
a slave to it.
4. Determine Your
Areas Of Expertise and Specialization: Once you've spent some time
considering what you know and what you enjoy doing, narrow your focus on areas
where you really understand what's going on. This may come from books
you have read, courses you have attended, connections you have or hobbies
you're involved in.
Learn to see how what you
know can be translated into financial opportunities. This may be as
simple as investing in businesses and services that you personally use and
think do an excellent job. In my opinion, the average investor is better
off choosing the public companies that they personally love and respect to
invest in than attempting to understand the complexities of portfolio
management.
There is no
"right" or "wrong" way to pick stocks. There are humorous
examples of animals who have been trained to pick stocks who do better than
their human counterparts. NOBODY knows what's really going to happen,
but if you invest in quality companies that are doing a great job and
are committed to becoming even better, chances are very good that others will
notice as well and that stock price is going to go up.
(Do you want to help your
children invest? Find out which companies are making products that they
and all of their friends love. Those are the stocks that are going to
climb. What music companies have the largest stable of hot new artists
that the young people are listening to? Chances are good that those
stocks will rise.)
The same principles hold
true for Real Estate investment. If you see reasons why an area
or city is going to be increasing in population, then it's a good time to
invest. Did you just get a new job where you had to move in a field
where there is huge growth expected? Time to look at that real estate
market.
When it comes to Business,
you REALLY need to know what you're doing before you invest or start your
own. Read the E-Myth
before you even consider opening or investing in a business.
5. Develop New
Areas of Expertise: You will only get to HAVE more when you KNOW
more. Start reading, attend seminars, and make new acquaintances who
know things you and your friends don't know. Even if it's not financial
education you're focusing on developing, do things that enrich your mind as
opposed to just entertaining yourself.
There are so many good
books that address the subject of financial development. Many of the
best have been condensed on this site. Read
through the short version and find one or two that you want to buy for
yourself.
6. Purchase And
Play the Game CASHFLOW: This is
probably the single most effective tool to use if you want to learn how money
works. Play it with your family, or there may even be organized games in
your area where you can get together with others who are also working on
developing their level of financial awareness.
CASHFLOW
101 teaches you how to make money work for you and the expansion game CASHFLOW
202 is excellent for teaching people about the stock market. Even
teenagers can understand the way this game teaches it. There is even a
children's version, CASHFLOW
for Kids that you'll wish someone had played with you as a child once you
teach it to your own children.
(To find out about CASHFLOW
seminars and groups that get together to play in your area, e-mail fasttrack2@shaw.ca
)
7. Focus On What
You Love: No matter what you do, keep your money involved in things
you love, things you believe in and things that you are proud to be associated
with. Money is not the goal, it is a means to achieve whatever goals are
important to you. It's not about having more money so you can buy more
stuff, it's about having enough money that you have the freedom to pursue the
things that provide meaning and fulfillment to yourself and those you care
about.
Graham White www.incrediblepotential.com
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