Managing risk and investing wisely
By Andrew Robbins
CSMS Magazine Staff Writer
For fifteen years I traded corn and soybean future contracts. When electronic trading turned a hobby into an eighty hour workweek I transitioned from commodities to equities. Growing capital and staying ahead of inflation are foremost on my mind.
When investing my money, I have a few beliefs: (1) No one cares more about your money than you do; (2) Education is the key to financial growth; (3) Only invest in markets or sectors where you understand the fundamentals; (4) Have an investment plan; (5) Investing is like windsurfing.
No one cares more about your money than you do
Why would anyone think that a complete stranger has an interest in growing our money? I think the record is pretty clear. Every two weeks, millions of workers contribute money into their retirement fund, and that fund grows for a while and then there is this terrible global event. The market crashes, and most investors lose a large portion of their financial future.
Education is the key to financial growth
There is no crystal ball or tea leaves to be read. Tomorrow’s newspaper will not arrive today. Only your persistent search for investment provides you with the edge to outfox your competitors.
Oh! That places the responsibility for your financial independence completely on your shoulders! Managing your time and educating yourself is the key. That’s right, you cannot waste time watching a worthless television program and we all know that most of you have cell phones and you are constantly texting but your ‘claim’ is, “I have no free time to manage my assets.”
My suggestion is that you make time to listen to Cramer at CNBC.com and if you like to read, try Crisis Economics by Nouriel Roubini and Senseless Panic by William Isaac. If you are just starting and ‘claim’, “I don’t have the money to purchase these books.” Try your library’s inter-library loan program.
Only invest in markets or sectors where you understand the fundamentals
The question is often asked, “As an investor are you a technical trader or fundamental investor?” Technical traders graph price movement and chart the highs/ceilings and lows/floors. Using historical and statistical probabilities they try to predict stock price change and anticipate price break out, up or down trends. Technical trading can be quite volatile. It may be influenced by a number of programmed-indicators such as, foreign currency exchange rates, interest rates, stock indexes, etc.
My definition of market fundamentals is very simple. Only invest where you spend your money.
Do you drive a car? Then you know something about Ford, GM, etc.
Do you have a checking account? Does the bank give you great service? Then you have firsthand knowledge that your bank will or will not be in business next month.
Consuming utilities, clothing, food, gas, etc., provides immediate feedback, value received for dollar spent, and your transactions are an informal evaluation of our economy.
Next time you meet a visitor, ask two questions, “What is your occupation and what is your opinion of the state of our economy?” Their answers may surprise you.
Have an investment plan
Think about it, what are your financial goals? How much money do you need to be happy and how are you going to achieve investment success?
Start by writing down the amount of your monthly income and where you spend most of those dollars. If you follow this advice, you have indirectly established an income statement, income minus expenses.
Manage your money, once you understand where you spend your dollars then you can make changes in your spending habits and save more. To obtain financial independence, it is not the amount of money that you have to work with. The key is managing risk and investing wisely.
Open a savings account
Yes, I know interest rates are low but a savings account does two things. It proves you have assets and discretionary dollars.
Here is another suggestion: once a quarter list all your assets and all your liabilities. In other words, you now have a balance sheet. The balance sheet is a snap shot in time and it helps you determine if you are moving forward or falling behind.
If your assets (home price, cash, investments, etc.) are growing, you are moving forward. And, if your assets are shrinking then you are falling behind.
The balance sheet needs not be overly technical. Yet, it can be a wonderful motivator. Each quarterly report is a milestone, providing valuable feedback on your investment decisions.
Ignore anyone who says, “You were born into poverty, you will always be poor.”
Investing is like windsurfing
Like the wind, the investment world is constantly changing. There are times when the fundamentals are sound and then a competitor or the government enters with such disruptive force that you must make changes or suffer losses.
I’m optimistic about America’s financial future. Investment tools and electronic data are the key to successfully growing your money. The internet has leveled the playing field between the largest speculator and the novice investor.
A word of caution, don’t chase every investment opportunity. Become very knowledgeable, become an expert in one or two market sectors. Very few investments go up forever, bad news may become your time to buy select companies and good news may be the time to take profits. The name of the game is to take money off the table and put it in your savings account.
Note: CSMS Magazine and the author are not in the business of providing financial services or advice. Prior to investing, readers must seek professional assistance.
Andrew Robbins is the author of: It Took My Breath Away; One Man’s Experience May Save Your Life. He may be reached by email at: email@example.com
Also see: http://www.csmsmagazine.org/its-your-money-the-way-i-see-it-may-2010/
Thank you for this latest and more indepth article, Andrew. I have been a big fan of your articles. Your analyses are intellectually sound. They clearly prove your mastery on the subject matter. CSMS Magazine is truly the place to be online.
I couldn’t agree more, Davidson. CSMS Magazine is the number one blog out there, at least to me. I salut the staff for a job well done.
When will you have a seminar? Thank you for these pertinent info.
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