Investing Fundamentals
What is Investing?
Investing, broadly, is putting money to work for a period of time in some sort of project or undertaking in order to generate positive returns (i.e., profits that exceed the amount of the initial investment). It is the act of allocating resources, usually capital (i.e., money investing), with the expectation of generating an income, profit, or gains. —Investopedia
It is the process of buying assets that increase in value over time and provide positive returns.
Who are Investors?
An investor is a person who allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest) — Wikipedia
Lets break the definition:
- Investors can be individuals or organizations
- Who invest the capital to purchase assets
- With a defined level of risk and calculated returns
- Over a time frame with a specific financial goal.
ARE YOU AN INVESTOR?
How much cash would you be keen to give up today in return for a promise to receive $1000 in 10 years?
$100? $200? $300? $550?
In simple words, this is what investors do. They are visionaries who anticipate potential future developments or opportunities to grow their money.
Investing isn’t a get-rich-quick scheme
5 Common Traits of Successful Investors
Remember that the principles of successful investing are simple, but the hard part is adhering to them through the ups and downs of the market. All successful investors have some common traits.
1) Long-Term Thinking & Patience
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
Investing is often referred to as a game of patience because it involves making decisions that will have long-term effects on your financial situation. The market can be unpredictable, and prices can fluctuate widely in the short-term, so it’s essential to take a long-term approach to invest.
There are many reasons why long-term investing can be beneficial, including the potential for compounding returns over time, the ability to ride out short-term market corrections, and the potential to benefit from the growth of high-quality companies.
2) Invest In Good Businesses
“You have to know what you own, and why you own it.”
-Peter Lynch
A good business is one that is profitable, sustainable, and ethical.
Understanding the business can help you measure the investment potential. Warren Buffett has often used the analogy of buying stocks to a farm, where investing in a good company is like purchasing a productive farm that can consistently produce crops year after year. He has emphasized that the objective should be the output it produces over the long term rather than constantly estimating the land price every day.
This means that investors should focus on the value created by businesses instead of short-term price changes in the stock market.
3) Don’t follow the herd.
Good investors do not panic or rush to profit from momentum-based trends. They have a system that they believe in, and they understand when to buy and sell. Instead of being influenced by market trends or emotions, they focus on making rational and informed decisions based on their knowledge and research.
“Be fearful when others are greedy, and be greedy when others are fearful!”
— Warren Buffett
4) Diversifying the investment
The consensus among famous investors is that diversification is an essential part of a well-managed investment portfolio. Good investors do not put all their eggs in one basket. By diversifying their investment across multiple companies and sectors, they can spread their risk and reduce the impact of market fluctuations on their portfolio.
5) Understand the risks involved.
‘Rule No. 1: Never Lose Money. Rule No. 2: Never Forget Rule No. 1’ – Warren Buffet
We can’t deny that risk is a critical part of every investment. When the time comes to make a decision, good investors are rational and act based on numbers and logic. They know the difference between “speculation” and “investment.”
As an investor, you should understand how much risk you are willing to take.
What Is an Investment Vehicle?
Investment vehicle is a mechanism that allows investors to put their money to work and generate returns over time. It could be a financial product used by investors to generate positive returns. Investment vehicles can be high-risk, such as crypto and stocks, or safe investments, such as bank deposits.
Investment vehicles are designed to help investors achieve their financial goals, whether to grow their wealth, generate income, or preserve their capital. Your vehicle should meet your specific investment needs and align with your risk tolerance.
Examples
- Stocks
- Mutual Funds
- Real estate
- Bank Interest
- Crypto
- Bonds
- Precious Metal- Gold
- Federal Notes: Most safe
- Commodities
Investment Vehicle Characteristics
All investment vehicles have qualities that help investors decide which instrument best fits their needs. While choosing your investment vehicle, you should evaluate your investment goals. Here are some of the key characteristics of investment vehicles that investors should consider:
- Return– Capital gains & dividends
- Risk– Volatility & fluctuation
- Liquidity– How easily you can sell to get cash
- Cost– Commissions & Expense Ratio
- Time– Holding Period
- Capital– Minimum Money Required
George chose stocks and ETFs as his investment vehicles. He was looking for high return, high liquidity, low capital requirements, and over 30 year holding period.
George’s investment vehicle choices align well with his specific investment goals and preferences.
What is Investing?
Investing, broadly, is putting money to work for a period of time in some sort of project or undertaking in order to generate positive returns (i.e., profits that exceed the amount of the initial investment). It is the act of allocating resources, usually capital (i.e., money investing), with the expectation of generating an income, profit, or gains. —Investopedia
It is the process of buying assets that increase in value over time and provide positive returns.
Who are Investors?
An investor is a person who allocates financial capital with the expectation of a future return (profit) or to gain an advantage (interest) — Wikipedia
Lets break the definition:
- Investors can be individuals or organizations
- Who invest the capital to purchase assets
- With a defined level of risk and calculated returns
- Over a time frame with a specific financial goal.
ARE YOU AN INVESTOR?
How much cash would you be keen to give up today in return for a promise to receive $1000 in 10 years?
$100? $200? $300? $550?
In simple words, this is what investors do. They are visionaries who anticipate potential future developments or opportunities to grow their money.
Investing isn’t a get-rich-quick scheme
5 Common Traits of Successful Investors
Remember that the principles of successful investing are simple, but the hard part is adhering to them through the ups and downs of the market. All successful investors have some common traits.
1) Long-Term Thinking & Patience
“Only buy something that you’d be perfectly happy to hold if the market shut down for 10 years.”
— Warren Buffett
Investing is often referred to as a game of patience because it involves making decisions that will have long-term effects on your financial situation. The market can be unpredictable, and prices can fluctuate widely in the short-term, so it’s essential to take a long-term approach to invest.
There are many reasons why long-term investing can be beneficial, including the potential for compounding returns over time, the ability to ride out short-term market corrections, and the potential to benefit from the growth of high-quality companies.
2) Invest In Good Businesses
“You have to know what you own, and why you own it.”
-Peter Lynch
A good business is one that is profitable, sustainable, and ethical.
Understanding the business can help you measure the investment potential. Warren Buffett has often used the analogy of buying stocks to a farm, where investing in a good company is like purchasing a productive farm that can consistently produce crops year after year. He has emphasized that the objective should be the output it produces over the long term rather than constantly estimating the land price every day.
This means that investors should focus on the value created by businesses instead of short-term price changes in the stock market.
3) Don’t follow the herd.
Good investors do not panic or rush to profit from momentum-based trends. They have a system that they believe in, and they understand when to buy and sell. Instead of being influenced by market trends or emotions, they focus on making rational and informed decisions based on their knowledge and research.
“Be fearful when others are greedy, and be greedy when others are fearful!”
— Warren Buffett
4) Diversifying the investment
The consensus among famous investors is that diversification is an essential part of a well-managed investment portfolio. Good investors do not put all their eggs in one basket. By diversifying their investment across multiple companies and sectors, they can spread their risk and reduce the impact of market fluctuations on their portfolio.
5) Understand the risks involved.
‘Rule No. 1: Never Lose Money. Rule No. 2: Never Forget Rule No. 1’ – Warren Buffet
We can’t deny that risk is a critical part of every investment. When the time comes to make a decision, good investors are rational and act based on numbers and logic. They know the difference between “speculation” and “investment.”
As an investor, you should understand how much risk you are willing to take.
What Is an Investment Vehicle?
Investment vehicle is a mechanism that allows investors to put their money to work and generate returns over time. It could be a financial product used by investors to generate positive returns. Investment vehicles can be high-risk, such as crypto and stocks, or safe investments, such as bank deposits.
Investment vehicles are designed to help investors achieve their financial goals, whether to grow their wealth, generate income, or preserve their capital. Your vehicle should meet your specific investment needs and align with your risk tolerance.
Examples
- Stocks
- Mutual Funds
- Real estate
- Bank Interest
- Crypto
- Bonds
- Precious Metal- Gold
- Federal Notes: Most safe
- Commodities
Investment Vehicle Characteristics
All investment vehicles have qualities that help investors decide which instrument best fits their needs. While choosing your investment vehicle, you should evaluate your investment goals. Here are some of the key characteristics of investment vehicles that investors should consider:
- Return– Capital gains & dividends
- Risk– Volatility & fluctuation
- Liquidity– How easily you can sell to get cash
- Cost– Commissions & Expense Ratio
- Time– Holding Period
- Capital– Minimum Money Required
George chose stocks and ETFs as his investment vehicles. He was looking for high return, high liquidity, low capital requirements, and over 30 year holding period.
George’s investment vehicle choices align well with his specific investment goals and preferences.