Investment is without a doubt the 2nd most important aspect of your personal life after your career. We can apply the term Investment broadly in the sense that its giving time, talent or energy towards the achievement of some purpose. This might include a business, stocks, perhaps even self improvement and health, in as much as these are activities that extend our lives. I will deal with the broader implications in this blog, and here I will restrict myself to the art of money making.
The great importance I place on investment rests on the premise that 'money makes money' and if you take an average salary of $60,000, after 10 years of savings, you might well be making as much money on your investments as your primary income. Depending on your career advancement, the prospects for your investment portfolio might look even brighter than your career prospects. The implication is that if you manage your money well you might be able to retire after 15 years of work.
This is however a hard call. Your capacity to make money depends on so many factors. I will expand on these points in more detail, however your capacity to make money depends on:
1. Knowledge - Your capacity to find investments that offer higher yields or capital growth is critical. There is a misconception that risk is inversely weighted to reward, but this ignores the fact that risk is a element of knowledge management, so risk is not equal. Thus the market value for risky investments is lower for a technician than a layperson.
2.Investment strategy - If you want to make money you can't haphazardly throw money at the market like its a crap game. You need a strategy based on evidence and the knowledge you are accumulating. It goes without saying tha your yields should improve over time due to developing expertise and growth in your asset base.
3.Market timing - Its easier to expand your wealth during periods of economic expansion and easier to loose it during periods of economic contraction.
4.Investment psychology - Some people might have a great knowledge and an excellent strategy, but they are unable to convert their strategy into action. Basically the state of their psychology prevents them from executing their plan, or their psychology undermines their outcomes. Their psychology might be motivated by self-righteousness (validation), or a fear response.
Take a look at the links above to discover some of the investment strategies and tools I use for investing purposes.
There are several types of analysis that I employ to assess the different markets.
1. Fundamental Analysis
I use my knowledge of geology, mining engineering, metals and energy to make investments in mining stocks and commodities. This bottom-up approach to fundamentals involves estimates of future mining revenues or earnings.
2. Technical Analysis
I use my knowledge of charts to identify trends, as well as support & resistance levels. Understanding candle sticks is another useful tool I use.
3. Economic Analysis
I use a top-down fundamentals analysis to get a picture of the future direction of the market, starting with the bond market, then looking at property, equities, retail spending and commodities.