In this article, I conclude on my three-part series of articles on Investment 101: Tenets of successful investing. If perhaps, you haven’t read the earlier articles, you can check out the Part One here and part two here, before proceeding to read this concluding part.
Just as I stated in my preceding articles, our job as professional investors is to do a superior job, and our superiority comes from producing good returns earned with the risks under control. This central theme shall again be our focus us we wrap up on this series of articles.
In this concluding part, I discuss three additional principles as we conclude on this series. We take a close look at Asset Selection, Cyclical Positioning and then, the Consistency Principle. To begin with, let us take a look at the Asset Selection Principle;
- ASSET SELECTION PRINCIPLE;
Essentially, the asset selection principle states that; one should own more of the things that do well and less of those that do poorly. In explaining this, readers should note that I use the words assets and securities interchangeably.
In selecting assets or securities that do well, it is essential not to limit yourself to only domestic assets, but also to consider foreign assets as well. This helps so that investors don’t have to limit themselves to only those securities that are within their residential jurisdiction even when those securities are not performing well. One may look out for global securities that are doing well and invest in them through Global online brokers.
Again, in asset selection, the objective is to pick those assets with high degree of liquidity. High liquidity assets are fast moving assets that allows you to get in and out with ease whenever you want to. This helps in ensuring that, you are able to get out of the market the moment you realise you have made a wrong investment decision. Highly liquid assets allows you to liquidate your investment position quickly when you are wrong, without having to lose a significant amount of your investment capital.
For instance, the real estate market, is one of a less liquid market compared to currencies. As a result, a currency investor who realizes that he/she has made a bad investment decision can easily reverse this decision simply by calling their broker to act on their behalf within a few minutes, without having to lose any significant value of their investment capital.
On the other hand, it will take a real estate investor a much longer period to correct a wrong investment decision, and in some cases there are no avenues to reverse a wrong real estate deal, once it has been completed.
To add to the above, it is essential to keep in mind when selecting assets, by choosing those assets you love.
CYCLICAL POSITIONING PRINCIPLE;
This principle is what entreats investors to have more invested, more aggressively when the times are right and have less invested, more defensively when the times are wrong, thereby fluctuating between offense and defense in harmony with economic and market cycles.
The choice at any given time between offense and defense is the most important choice that an investor makes. In that, the most important thing is to know and decide whether to be aggressive now or defensive. When this is done right, all the other things will fall into place, otherwise the rest of the process wouldn’t yield much. Relative to your normal risk posture, you should be able to tell from time to time whether to be more aggressive or defensive. To be aggressive means having more assets and riskier assets whiles to be defensive implies having less assets and safer assets. Knowing how to do this well is really the key!
- THE CONSISTENCY PRINCIPLE;
Last, but not least, once an investor has been able to adopt a system of investing that works by producing results that outperforms market averages, they should be able to stick with it and be consistent with its application. Additionally, once an investor has been able to settle on a class of assets they are comfortable with, they should be able to stick with those assets primarily and review them from time to time. As always, getting to know what works and what doesn’t in the field of investing can be a very challenging task and same applies to finding assets which does well. When you are able to figure out these two key essential ingredients of investing, that is your signatory moment and you must pride yourself with it by being consistent in your approach to investing.
I strongly believe that this series of articles has been an eye-opener for many, and as a result, readers will go ahead to apply these principles in their investing activities to help scale up returns on investment. If you are one of those we have benefited from this series of articles, I would be glad to hear from you on how this series of articles have helped you.
Author: E.O Essien
E.O. Essien is a Chartered Economist with accreditation from the Global Academy of Finance and Management (GAFM) and the Association of Certified Chartered Economist (ACCE). He is a professional currency speculator, economic columnist and an Investment Analyst. You may reach him via email on email@example.com or on 0203656160, he will be glad to hear from you.