As of 2021, e-commerce giant, Amazon, was worth about 1.65 trillion dollars, one of only 5 corporations to have ever reached a trillion dollars in valuation. Its stock price currently trades at about $3,178 in the NASDAQ exchange. However, when Amazon first went public on the 15th May 1997, its stock price traded at barely $18 per share. That means if you invested just $1000 in Amazon back in the day, today it would’ve been worth $176,575! That’s over 17,500% return on that investment! Such massive returns can only come through investing. There are still several opportunities out there just waiting for you to grab them.
If I were to ask you about your goals or aspirations for this year, I’m sure one of them will be to earn more money. Exactly how much depends on you. Have you thought about how much money you’ll like to make this year? Did you set financial goals for this year? If you need help with that then check out this video. If you already have clear financial goals, what you need are strategies. Investing is one of them. You can’t make more money without investing. Investing enables you to make money independent of your time; it enables you to earn passive income. Investing is tricky though; it is governed by certain rules that you must follow if you desire to be successful. What are these rules?
1. Don’t lose Money
You expected this right! The only thing people hate more than not making money is losing money. All great investors are laser focused on protecting their downside. Billionaire investor, Warren Buffet was once asked his rules for investing, and he gave two rules which are:
One: Never lose money
Two: See rule number 1
You get the point. This is very important because, if you don’t lose money, you still have a chance to make more money from what you have in the future. What if you lose 50% of your investment? How much do you think it will take to get back to the starting point? 50% increase? No, you will need 100% just to get back to what you initially had! That will take more time which you will never get back.
2. Do your homework
If you don’t want to lose money, you need to invest in what will keep you from losing money. Which means you need to do you homework before jumping into any investment opportunity. Beware of shiny objects. Opportunities that promise unrealistic returns. Those are huge red flags. You can’t just double money from the thin air. It doesn’t work like that. A good rule to follow here is: If it’s too good to be true, then it probably is. Don’t fall for ponzi schemes.
3. Invest in what you understand
What are you actually investing into? Don’t invest in what you don’t understand. All wealthy individuals focus on investing in industries or businesses that they understand. You shouldn’t just go in blindly without having any idea of how an industry operates. Warren Buffett’s top 3 stocks are in Apple Inc, Bank of America and American Express. He carefully picked specific corporations in key industries that he understands. That’s why he doesn’t own stocks in Microsoft or Google, which are still great corporations. You should only invest in what you understand.
4. Invest in what you’re passionate about
Passion is what keeps you going even when the going gets tough. It’s what will push you to be curious about the investment opportunity you’re pursuing. It’s what will enable you to play the long game. Investing is not a get rich quick scheme. If you love cars, consider investing in the automobile industry or in the new autonomous vehicles. If you’re passionate about healthcare, consider the health sector. Successful investors always invest in what they like, it gives them the thrill to exceed their limits. Robert Kiyosaki, author of the best seller, “Rich Dad, Poor Dad”, loves real estate and he invests mostly in real estate. He hates the stock market, a point he makes clear whenever he talks about finances. Does it mean that stocks are a bad investment, No! As a matter of fact, Warren Buffet, the 6th richest man in the world according to Forbes made most of his fortune through stock investments. He likes stocks and he invests in stocks. To increase your chances of success, invest in things you like.
5. Risk little to earn a lot
While it’s good to get a positive return from an investment, it’s better to get a great positive return. A return that is way above the risk. All great investors focus on looking for investments where they risk a little to earn a lot. This is known as asymmetric risk/return. The best time to often invest is during crashes. A market crash is like a supermarket sale for investors. At that point, you buy assets at a lower cost than usual and when the market goes up again, you reap the rewards. There are examples of deals where investors got a huge return with little downside. Billionaire and hedge fund manager, Paul Tudor Jones once mentioned in an interview that he never invests in an opportunity unless he can make at least $5 for every $1 invested. Kyle Bass, another hedge fund manager figured out a way to risk only 3% to earn 100% return. That’s amazing! If you want to be this successful, look for opportunities that offer asymmetric risk/return.
6. Diversify your investments
Even after following the above rules, there is really no 100% certain investment. So in order to protect your investment and minimize your downside, you need to diversify your portfolio. The benefit of a diversified portfolio is that it balances failed investments with successful investments. There’s a higher chance that not all of them will lose money. When one goes down, another goes up and usually more than the loss. Diversification doesn’t however guarantee gains but it minimizes the chances of losses overall.
7. Keep going, it’s never over
You would think that the richest men in the world can just relax and stop doing anything. After all they have earned so much that they can’t all spend even if they wanted to. To give you an idea, consider Bill Gates' current net worth of about 124 billion dollars. Assuming that he spends 1 million dollars per day, it will take him close to 340 years to exhaust the money! Can you imagine that!? Why does he even bother doing anything right? Well, that’s because in the end it’s really not about the money. It’s about helping people. To whom more is given, more is expected. We find fulfillment in giving to others. There’s no ceiling to how much you can earn. Don’t think that you’ve arrived. There’s no amount of money that will make you satisfied. That explains why the wealthy get wealthier. They keep finding ways to help people. Don’t stop investing, keep going.
Are you ready to become an investor? These 7 rules will get you started on this amazing journey. If you need guidance, don’t hesitate to book an appointment with us.
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