Investment Strategies & Tips 💡
Investment Strategies & Tips 💡
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As teenagers, we have to be wise about our finances and our investments.
Some investment strategies and tips:
1) Setting up investment goals and playing the long game. Depending on what your goal is, you can work towards it by buying different types of stocks or bonds
2) Educating yourself on investments. With proper knowledge on the topic, investing is easy
3) Diversify your profile. When one sector fails, you can still sell your stocks from other sectors! Don't place all your eggs in one basket!
4) It is okay to take calculated risks with different methods of investing such as shorting!
Investment Fraud
In investment, you can and WILL meet fraudsters and dishonest investment managers or agents, who would trick you into giving your money to them to invest before running off with it. Here is how to avoid fraud:
Look out for "Too Good" of a deal! 🔫
Many fraudsters may promise big returns, making claims such as "Knowing more" about the market or having found a good market or opportunity.
Be wary of such big claims and soliciting, and do your own research to find out if their claims are legitimate or exaggerated, or worse still completely fake
Look out for charismatic dealers 😎
Investment Agents may be persuasive, and charismatic, and try to "Rizz" you up to make you more likely to take their deal.
Research your agents and/or managers before working with them, seeing if they are legitimate.
"Everybody is investing in this" 😦
If an agent focuses on how much others are buying a particular stock, or investing with them, this could be a RED FLAG! Never, EVER, blindly follow the crowd, or blindly listen to what others say!
Asking for your money NOW 😬
Likely fraudsters would pressure potential customers to give them money immediately, telling them that the opportunity is a once-in-a-lifetime one, or would pass quickly.
This is a red flag, as they may be trying to hurry you so that you would not have time to adequately research and see through their lies!
MOST IMPORTANTLY, always educate 👨🎓 yourself about investment, and never get into investment without even a basic understanding of how it works, or what kind of agency and investments you are getting yourself into!
(In)famous kinds of schemes
Pump and Dump Schemes
Fraudster agencies spread false/misleading info to create a buying frenzy, temporarily inflating a particular stock's prices, thus "PUMPING" it up
May spread it through social media, television, newspapers, or WhatsApp/Telegram messages
Fraudsters will then "DUMP" the shares of the stock and run away, leaving the stock prices plummeting, and investors losing money
Ponzi Scheme
Fraudster companies would promise clients a huge sum of money, to get them to invest in hopes of profits
Companies would then make this false promise to more and more investors, and use the money they invested to pay back the original clients
Relies on a constant flow of money - once there are too few new clients, the scheme dries up and is unraveled, and clients may lose their money while the fraudsters would take the rest of the money and (hopefully) run away
How to identify and avoid Ponzi Schemes. If there is/are:
A guaranteed promise of high returns with little risk
A consistent flow of returns regardless of market conditions
Investments that have not been registered with the Securities and Exchange Commission (SEC)
Investment strategies that are secret or described as too complex to explain
Other clients not being allowed to view official paperwork for their investment
Other clients reporting facing difficulties removing their money
Fun Fact: The largest Ponzi Scheme in history was done by a guy called Bernie Madoff, who did fraud with almost $50 billion. He ran his scheme for around 17 years, from the mid 90s to the late 2000s. His scheme was unraveled in the 2008 financial crisis when investors began withdrawing money. He was sentenced to 150 years in prison, and liable to pay $170 billion in fines. He died aged 82 in 2021.
Bernie Madoff after being arrested
https://nypost.com/wp-content/uploads/sites/2/2023/01/bernie-madoff.jpg?quality=75&strip=all&w=744
Affinity Fraud
Fraudsters prey upon specific groups, like Local Communities, Churches, Neighbourhoods, Specific Religions, etc.
Fraudsters often are, or will pretend to be, members of that community, building trust in them as they employ "affinity" and the support of community leaders to publicise their investment opportunities
Difficult for police to catch, as victims oftentimes are reluctant to report on them, or even outright deny or are oblivious to the schemes due to the affinity they feel
Not really a "scheme" per say, just a method to get others to trust you so that they can carry out other schemes
How to avoid this fraud
Never fully trust anyone, even if they are of the same class, religion, race, or someone similar to you
If you realise that you have been lied to, DO NOT HESITATE to report them, for they could cause harm to many others if not caught
Here's some strategies and tips from Warren Buffett
Warren Buffett's investing philosophy in 9 steps
Warren Buffett's investing philosophy in 9 steps
Warren Buffett, one of the most famous investors, is known for his wise investing methods that has helped his acquire his current wealth. Here are his many ways summarised in 9, general steps (The Motley Fool)
1. Look for a margin of safety
1. Look for a margin of safety
- Prioritizing a margin of safety is a cornerstone of Buffett's investment philosophy.
- A margin of safety refers to characteristics of an investment that help to protect investors from losing money.
- For example, if a stock trades for $10 per share, but the company's assets are realistically worth $12 per share, then there's a $2 margin of safety. The intrinsic value of the assets should prevent the company's stock price from declining too significantly.
Buffett's goal is always to pay less than a company's intrinsic value. As he says, "A too-high purchase price for the stock of an excellent company can undo the effects of a subsequent decade of favorable business developments."
2. Focus on quality.
2. Focus on quality.
Warren Buffett doesn't invest in junk. You typically won't see him buying struggling businesses, regardless of how cheap they become.
"It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price."
3. Don't follow the crowd.
3. Don't follow the crowd.
Buffett would tell you, "don't buy certain stocks just because everyone else is doing so", but he would also advice you not to aim to always be a contrarian and sell the stocks that everyone else is buying.
As Buffett does, the best way to invest is to ignore the crowd entirely and focus on finding value on your own.
He also says, "The most important quality for an investor is temperament, not intellect. You need a temperament that neither derives great pleasure from being with the crowd or against the crowd."
4. Don't fear market crashes and corrections.
4. Don't fear market crashes and corrections.
- The obvious goal of stock investing is to buy low and sell high, but human nature can compel us to do the exact opposite.
- When we see all of our friends making money, that's when we feel like we should try to make money, too. When stock markets crash, it's our nature to get out before prices drop any further.
Buffett loves it when stock prices drop since it creates opportunities to buy at a discount, which explains why 2022 has been a particularly active year.
If you were shopping at your favorite store and suddenly learned that the entire store's prices were 20% lower, would you panic and run away? Of course not.
Buffett embraces discounts on his favorite stocks and says, "Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble."
5. Approach your investments with a long-term mindset.
5. Approach your investments with a long-term mindset.
"If you aren't willing to own a stock for 10 years, don't even think about owning it for 10 minutes."
Buffett doesn't choose stocks just because he thinks their prices are going to rise this week, this month, or even this year. Buffett buys stocks because he wants to own those businesses for the long term.
He still sells stocks frequently and for a variety of reasons, but he approaches most of his investments with the mindset of owning them forever.
If you can't get into a "forever" mentality with your stocks, Buffett argues one of the best investments most people can make is a set-it-and-forget-it investment such as an S&P 500 index fund.
6. Don't be afraid to sell if the scenario changes.
6. Don't be afraid to sell if the scenario changes.
"The most important thing to do if you find yourself in a hole is to stop digging."
"The most important thing to do if you find yourself in a hole is to stop digging."
While he certainly wants to own every stock he buys forever, the reality is that outlooks change. It might surprise you to learn that Buffett bought a large position in mortgage agency Freddie Mac (FMCC 0.49%) a couple of decades ago. But a few years before the financial crisis of 2007-09, he noticed the lender's management had started to take unnecessary risks with the company's capital and decided to sell. When the financial crisis hit, it became clear that Buffett had made a smart move.
7. Learn the basics of value investing.
7. Learn the basics of value investing.
Warren Buffett is widely considered to be the world's greatest value investor. Value investing prioritizes paying low prices for investments relative to their intrinsic values
A value investor's goal is essentially to buy $100 worth of a company's stock for less than $100 -- ideally, much less. Value investors seek out and invest in companies with intrinsic values that are well above the enterprise values implied by the prices at which the companies' stocks trade.
Value investors like Buffett expect that the market will eventually recognize the full value of an undervalued company, resulting in an increase in the company's stock price and a profit for the value investor.
8. Understand compounding.
8. Understand compounding.
Buffett uses compound interest, dividend reinvestment, and the power of constantly reinvesting the operating cash flow generated by Berkshire's businesses to his advantage.
How powerful is this?
Berkshire has averaged a 20.1% annualized return since Buffett took over in 1964, compared with 10.5% for the S&P 500. This may not sound too spectacular until you realize that, over time, this has resulted in a 3,641,613% total gain for shareholders versus just 30,209% for the S&P 500.
9. Research and reflect.
9. Research and reflect.
Buffett regularly spends long days in his office in Omaha, Nebraska. It often surprises investors to learn that he spends the majority of his time just sitting alone and reading or not doing anything at all. He's been quoted as saying, "I insist on a lot of time being spent, almost every day, to just sit and think."
Buffett views knowledge as something that compounds over time, and he believes that much of his success can be attributed to the accumulation of as much investment knowledge as possible
Warren Buffett's example shows that a smart investor does not follow the crowd, but neither does he completely neglect what everyone else says just to be "edgy". A smart investor is never afraid of change, but sees everything and anything as an opportunity!
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