Investing is not an easy thing, yet everyone wants to invest in something.
Somewhere they can stash their money and get something in return. In Kenya, there’s a rush for land and property, which has paid off for some while burnt others’ fingers.
Sometime back stocks were the in-thing at the Nairobi Securities Exchange, with the advent of initial public offers (IPOs), but that excitement died off.
And you haven’t forgotten the noises about quails and their eggs, and how that bubble burst! So what to do? Here is a 10-point guide to a balanced and successful investment from one of the best investors in the world.
- Rear View Mirror Investing is hazardous to your wealth: do not just pick an investment because it has done well in the past. This is a typical buy high sell low behaviour that makes it impossible to make money in the long run.
- Greed and Fear are the two worst emotions an investor can have: Warren Buffet says to buy when you are most scared and sell when you are feeling complacent. I agree. Fear too often forces investors to sell at or close to bottoms while greed can sway investors to buy towards tops.
- Buy and Hold are a thing of the past: it may be risky to buy a stock, mutual fund, or bond and let it just sit there unattended. News travels too fast and companies come and go too quickly for you to just hold on forever.
- You shouldn’t watch the “news” to make investment decisions. News networks are geared towards scaring investors. In order for news networks to grow viewership “something big” always has to be taking place.
- Boring is Better: Invest in tried and true companies or funds that focus on “hitting singles and doubles” as opposed to home runs.
- Review Your Investments at least quarterly. Client service is the number one focus. It is prudent to review your holdings, your account’s performance, and its prospects going forward on a quarterly basis. Always open your statements. Do not let the news of the day make you become an absentee investor.
- Buy What You Know: This is a tried and true theory first stated by famed investor Peter Lynch. Buying what you know and like not only allows the investor to be enthusiastic about the investment but also allows the investor to have more conviction behind the investment.
- Have a Retirement Plan: it is imperative to have a road map for retirement. The more detailed the plan is, the better the odds you have to get to the finish line successfully.
- Do Not be Too Diversified: this is counter to conventional wisdom. However, investment experts advise against over-diversification. There are not that many good investments out there to own.
- Selling is the hardest but most critical part to successful investing: Buying is the easy part. Have a target in place on the upside and the downside for each investment and stick to it. This forces you to sell for gains while also limiting your downside risk.