Seven ”Must-Knows” of Investing

My very first interaction with investment came from the many dividend warrants and company financial reports delivered to the house on behalf of my late uncle of blessed memory. Those were the good old days, when our grandparents and parents invested early in great companies and real estates, when all things were more equal than unequal…. They didn’t quite need much financial training to enter into profitable investments, all they needed was a trustworthy stockbroker/realtor…………There was generally less complications,right?

It’s not that quite straightforward anymore and we need to make our investment decisions from an informed standpoint. I recall some interesting ambitious- novice investment moves i made at the university and the early stages of my career (mostly initial public offering) and i smiled and sighed. Do you know why? the game has not really changed much, maybe more/new/greedy players. Even for fraudulent schemes, same game, new fools. In hindsight, i definitely had a good intention. Who wouldn’t? After reading “Rich Dad, Poor Dad”, “Richest Man in Babylon”etc. and even gifting my late dad of blessed memory with “The rich dad’s guide to investing”. Such was the extent of my motivation. Thankfully, i treaded with caution, did i even have that much money to be risk friendly then? hahaha…Anyway, quite a lot of folks recovered late from the stock market boom of the first decade of this millenium in Nigeria. Those with the right knowledge won though, because there were a lot of losers, therefore, some people gained from the events. What did they know or what do you need to know to avoid such pitfalls in investments? Not only stock market, any form of investment for passive income.

Know your country

Before embarking on any investment journey, you need to understand the economic landscape ( how stable is the economy?), the monetary and fiscal policies direction ( how often does the music change?, where are we headed next?), the efficiencies of the regulatory bodies and partner firms amongst others. You don’t want to get into an investment only to be cut short by a new policy or inefficiencies that could be avoided. This knowledge is especially critical for those investing in side gigs/hustles or a new to the market investment, new industry ( if equities market).

Know your purpose

When the purpose of a thing is not known, abuse they say is inevitable. You don’t have to follow the bandwagon by getting into the latest profitable investment even when you don’t understand how it works. You don’t want to be the greater fool. There is a theory in investing called the greater fool theory which is the idea that, during a market bubble, an investor can make money by buying overvalued assets and selling them for a profit later, because it will always be possible to find someone who is willing to pay a higher price and bingo, road block!!!!. No one is willing to buy it off the last investor since it’s already overvalued. There are several reasons for investing and this should guide your choice of investment. Do you want to grow your money?, Do you want to save for retirement or for mortgage equity contribution?, Do you want to start a business?, Do you want to become the owner of a big corporation? Is your investment for speculative reasons?, How soon will you be needing the principal investment? In the last instance, liquidity will be key for you in deciding the optimum investment, you don’t want to invest in real estate when such funds will be required soon.

Know your strategy

This is your long term tactic to achieve the purposes outlined above. Warren Buffet, one of America’s successful investor had a strategy for investment in stocks. He invested in undervalued assets with a focus on the potentials. He played a long game to finally become the owner of such companies while taking gradual steps. For investments in stocks, it’s best to play big, if you are going to enjoy the benefit. You don’t want all your gains to be swallowed up by brokerage fees , playing small.

Know your risks

If it is too good to be true, chances are that it’s too good be true!!!. I recall when i just started my career and there was the money doublers boom. It was so good to the ears. Bring your N100k and we will double it in 2 weeks to N200k. We all scrambled to get involved. Infact, i lent someone my money for his own investment and we even quarelled over it, as the bubble bursted, no one got the promised returns and my guy wasn’t ready to return the principal i borrowed him for the investment…. Hahahaha. What’s the point here? We all naturally get carried away with the returns on an investment without considering the risks. What’s your risk appetite? Are you risk friendly or averse? Will you go and jump on third mainland bridge if the worst happens? How much can you possibly trade off for this investment? Can you mitigate the risks you have identified, by diversifying, hedging or insuring? Ok. In recent times, everyone rushed towards cryptos or dollar investments to cushion the effect of devaluation. However, for your dollar investments in US stocks, have you thought of the downsides? especially if your earnings are not in the same currency? Can you devote yourself to the study of the US stocks and market to make the right choices and prevent stories that touch?

Know your age

In Nigerian parlance, “sho mo age mi? lol…. ( meaning, do you know my age?). I can hear you asking, what’s age gotta do with it? A whole lot. It determines the reasonable level of risk you should take except in a situation where you have gathered enough experience to make a tough call. To everything in life, there are exceptions. For instance, at over 70 Warren Buffet was still making calls on stocks. He started quite early, his first stock was at 11years and he has been committed to the space, devoting enough time to study the intrincacies as it relates to where he operates and of course, one of the most developed exchanges in the world. He can make a call, besides he already has so much money to hedge any failure. One important rule though, is to start early, as early as your twenties where you can take risks and fail early-fail forward. By age 50, you want to concentrate on consolidating your investment and planning for your retirement. You will mostly find different suggestions on what your investment portfolio should be like according to age brackets on the internet but i am not a one size fits all person. Demography plays a huge role as earlier explained and should be duly considered.

Know the market

Again, Warren Buffet’s success can be also be linked to his thorough understanding of the markets where he played. He once said, ” i don’t invest in what i dont understand”. I have been invited to be part of some investments too and the major reason i don’t get involved is because of … let’s call it my lack of understanding… ( I no sabi book or english, *i am not lettered or can’t speak english)… If it’s too complicated for me, i won’t stress it. Of course, some folks will have a grasps and fine, they should please go for it, they can’t definitely earn my money as theirs…. If you don’t understand it, don’t join the train. If you really want to make a break from the ‘said complicated investment”, find a way to learn how it works, asking the right questions before getting involved. Can you handle the inefficiencies that may affect your investment? For example, a delay in processing a sell order in the case of shares? Currently in real estate investment, it will be wise to tread with caution in investing in office complexes with the advent of work from home and the reduction in the demand for office spaces, thanks to digital innovation.

Know the company

Recall my story about the money doublers, do you know that no visit was made by any one of us to the physical address of the company? It was only after the promised return on investment was “missing”, that we sent troops to Ibadan…. . Imagine, lagos boys and girls getting scammed by “awon omo ibadan”.( the people of ibadan) . Again, Warren Buffet will usually digest the financials of the companies he is interested in. He will conduct his investigations and thoroughly have a personal view of the companies potential. Infact, he had a strategy to invest only in companies that have operated for more than ten years and above. Sorry o, all you buyers of initial public offering of 2year old companies…. For equity/stock investors, asset management companies and some financial institutions usually publish financial analysis of companies with a buy, sell or hold advice on their websites. Note that opinions can differ from company to company and stockbroker to stockbroker. As much as possible, make your own judgements. When it comes to real estate, you want to know the real estate company is not a scam and other due dilligence like conducting a search of on the title and several other considerations which we will talk about on our real estate feature later.

Hope you will keep the ”Knows” at the back of your mind and avoid investment pitfalls. Shine ya eye o… (*Be vigilant).

Which of the “knows” resonates with you? Do you have some additional “Knows”? Have you been scammed before? What’s your “investing – No” and your go-to investments? Are you a conservative investor or a risk taker? Please, let’s hear from you.