Ensure your investment preserves the value of your money.
Investing preserves the value of your money, but speculation does not. Benjamin Graham elaborates:
"An investment operation is one which, upon thorough analysis, promises safety of principal [the money you invested] and an adequate return [earnings on your investment.] An operation not meeting these requirements is speculative [gamble].”
If you buy a bond (a type of debt contract) to hold until maturity, you would have made an investment. But if you buy the same bond with an intent to sell when its value increases appreciably, you are speculating. You may or may not need professional services to speculate, but you do need professional involvement to invest.
1. Start early and play for the long haul.
If you buy a bond (a type of debt contract) to hold until maturity, you would have made an investment. But if you buy the same bond with an intent to sell when its value increases appreciably, you are speculating. You may or may not need professional services to speculate, but you do need professional involvement to invest.
1. Start early and play for the long haul.
If you are considering investing, the best time to start is now. Central to the benefits of investing is compound interest. Compound interest occurs when the total amount of your investment and your earnings are reinvested.
Importantly, don't mistake hesitation for patience. In the words of the legendary Warren Buffet: “Don’t get tempted to pass up a good investment that’s attractive today because you think you will find something better tomorrow.” Get started now.
2. Reinvest
Importantly, don't mistake hesitation for patience. In the words of the legendary Warren Buffet: “Don’t get tempted to pass up a good investment that’s attractive today because you think you will find something better tomorrow.” Get started now.
2. Reinvest
There are financial assets that only pay interest without compounding. Bonds are one such type of asset. You must ensure that the earnings from such investments don't sit idle. In fact, reinvesting is necessary to maximize the market in the case of a bond.
The reinvested earnings accumulate to almost 5 times above the earnings that were not reinvested.
The reinvested earnings accumulate to almost 5 times above the earnings that were not reinvested.
3. Stay invested
Stay invested because time in the market beats timing the market. Timing the market in the hopes of high returns is speculative because it is anticipatory rather than specific. Legendary investors dissuade this because the markets cannot be predicted. Consider the following scenario about a market entrant named Spec:
- Spec notices that his Ksh. 50,000,000 investment has gained in value by 10% to Ksh. 55,000,000, at which point he decides to cash in.
- After Spec cashes in, the market price shoots up by another 10%. Spec’s investment would have been valued at Ksh. 60,500,000
- Spec experiences FOMO, and reenters the market with his Ksh. 55,000,000 for 10% fewer units of his security. (his 55 million buys him
- less ownership than his original 50 million did).
- The president of Aissur, a medium-sized militarily powerful country to the far South of the Equator, declares war on Eniarku, its vastly larger but weaker neighbor. The market crashes by 30%, and the value of Spec's investment drops to Ksh. 38,500,000.
- Not long after Spec sells in panic, investors realize that the negative impact of the war on their industry will be minor.
- The market leaves Spec behind as it rallies to near its pre-crash levels.
- Spec gets resentful and swears off financial markets.
Shouldn’t Spec have just stayed invested? Trying to time markets is usually so risky that it is better to accept a modest return over a long time. Also, a good investment advisor would have recommended a well-researched, low-risk portfolio.
Market storms weather down. In the long run, markets trend upward because organizations develop efficiencies - look at this inflation-adjusted chart of the S&P500 since 1929. Sub-Saharan markets are especially poised for growth.
With headlines like these, it is understandable that someone would hesitate to remain invested. Ironically it would be a mistake to be so impressionable as to trade on them. Case in point, it would be a mistake to exit Kenyan bond markets right when new issuances have been at their most profitable in years.
Market storms weather down. In the long run, markets trend upward because organizations develop efficiencies - look at this inflation-adjusted chart of the S&P500 since 1929. Sub-Saharan markets are especially poised for growth.
With headlines like these, it is understandable that someone would hesitate to remain invested. Ironically it would be a mistake to be so impressionable as to trade on them. Case in point, it would be a mistake to exit Kenyan bond markets right when new issuances have been at their most profitable in years.
Going into each additional trade is an extra layer of complexity and a potential erring point. Furthermore, each trade incurs transaction costs and fees because the exchange of securities must be facilitated by systems and people, which costs money.
Staying invested should be a life strategy, and investing should be a lifestyle.
4. Avoid overly complex, layered strategies.
4. Avoid overly complex, layered strategies.
Keep your investing strategies & portfolio designs simple and ensure you get the gist of your investment advisor or manager’s strategy. Simple doesn’t mean basic – some concepts are inherently technical – it means straightforward. It means avoiding a haze of many levels and layers. As with any system, adding layers adds complexity, which adds potential failure points: Have it on some of the world’s best authorities:
Sam Zell: "My takeaway was a whole new respect for simplicity. The development required multiple steps, and every step meant one more chance for something to go wrong.”
Ray Dalio: “get rid of irrelevant details so that the essential things and the relationships between them stand out".
Warren Buffet: “I try to invest in businesses that are so wonderful [simple] that an idiot can run them. Because sooner or later, one will.”
5. Invest well:
It’s not a race, nor is it a gamble,
5. Invest well:
It’s not a race, nor is it a gamble,
If you get in a haze, you will tumble.
I wish you the best in your investment journey.
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