Investment Strategy

You need two things when you're planning on investing your money in vehicles beyond the scope of banking. One, the willingness to accept the possibility of your money dropping into the oblivion called ZERO. Two, a strategy, and that means knowing what you're getting into. That goes for both the investment vehicle you're considering AND the one you will eventually choose to ride.

Otherwise, you're either an idiot or a gambler. Unfortunately, the market has plenty of both. If it didn't, value investors who made it big like Warren Buffett (or his classmates from that class in Columbia Business School long ago...) wouldn't exist.

To properly invest, you need:

1. THE KNOWLEDGE. You have to know what you're getting into. When buying a car, it's due diligence to look at the contract, the payment scheme, insurance terms, and the profile of the vehicle itself before signing the deal. This mirrors the examination of the terms of an investment (price, stipulations, individual situation) . It helps you avoid being trapped by the illusion of security, incurring unwanted debt or difficulties. It could also help in identifying profit/divestment opportunities in the future.

2. THE SKILLS. Once you got the knowledge, the next thing to do is to get the skills in evaluating your investments, figuring out what qualifies as a good place and time to put your money in. In other words, you need to learn how to ascertain value and the right time to enter the game. Why bother going into a company with plenty of value when the price trend is going down OR there's an impending political/economic development that you think will bog down the prices? You might as well wait... then jump in a bit before or when the trend starts going up again. Hence, the need to master both fundamental and technical analysis.

3. THE OBJECTIVES. You need an objective for your portfolio. "I'm in the stock market to make a quick buck" just for the sake of it will eventually lead nowhere. Corporations have a vision-mission statement, don't they? They need that to give an overall direction for their business operations. In the same way, you as an investor would want the same thing. It prevents overdiversification (which dilutes your profits), and keeps you in line to industries/investment vehicles of your preference or expertise.

4. THE STANDARDS. Finally, there are the standards. What qualifies as a good investment? How is this choice a buy or sell? Do I stand to earn significantly from it? How can I compare it to other options that look just as great? Without standards, it'll be difficult to identify value investments, even if you DO have the skills. You might make the wrong decision and end up losing a hefty amount in opportunity costs (or actual losses!). Standards vary among different vehicles and situations. A 5.75% time deposit and a 2% savings account will be difficult to juxtapose due to the stark difference between their terms, for instance. Furthermore, you have to keep on learning new ways to refine your standards, whether that means acquiring new skills OR redefining the way you evaluate a potential selection.



Personally speaking, my objectives are to attain and maintain over the long-term:

1. A 5% dividend yield on invested capital.
2. A CAGR of at least 20%.
3. A well-rounded portfolio of value investments, consisting primarily of equity securities. If capital and time permits, this portfolio should be spread out over several regions and industries I have some awareness of.
   

As of now, I have not yet developed the standards to evaluate a company's position in the seven elements I normally look for (can pay debt; profitable results; efficient operations; adequate returns; stable business; promising future; and, alluring valuations). The best I could do was a balanced scorecard system, but even that is lacking.

Signing out.