Successful money management in the new Millennium will boil down to more
than good luck and some part time ad hoc investment planning. It will take
sticking to the basics, some of which I discussed in last week`s column and
another aspect - taking risk.
The investment world we live in today is vastly different from the one we
knew 10 years ago. Take any major newspaper in this country from that
period. What do you see? Absolutely no or very little coverage on personal
finance.
And today? Every communication channel, including newspapers, magazines, TV,
radio and the internet are choc-a-bloc full of news relating to personal
finance and investing.
Is it because we have become more materialistic or wealthy? In some
countries yes, but here a new realisation has dawned among most people about
investments and investment markets and the need to take responsibility for
their investments.
While I generally advocate a responsible approach to investments I also feel
that investors need to learn how to take risks. And we all know that great
returns can come from sometimes making risky decisions.
Taking risks is not gambling, yet many people don`t know the difference
between gambling and calculated risk-taking. The ability to take calculated
risks is one of the key elements in being a successful investor.
Here again, you need a well-defined strategy and parameters. How much of
your capital are you prepared to risk and how much are you prepared to lose?
The unsuccessful investors are those who tend to be ill-prepared, emotional
and prepared to live with the consequences of their actions.
Are you prepared to risk all your money in a risky venture? Many well known
people have risked everything in a venture. Many have lost their shirts
while others have made fortunes. Those who made fortunes appear in the
newsmaker columns of newspapers while those who didn`t, find their names
elsewhere in newspapers - the sequestration notices. That`s what risk-taking
is all about.
But you can minimise risk enormously by getting a better understanding of
how the economy and financial markets work. To expose a great deal of your
money to a risk that you don`t understand is perhaps the single largest
reason why people lose money. Successful risk-takers know what they are
doing. They understand markets better than most and generally have a better
grasp of how the financial markets work.
Last year this time, when interest rates were rocketing and the property
market was dropping like a stone, I was buying. It was whispered how stupid
I was. With interest rates down from 25 percent to their current levels and
heading even lower, my property investment of last year has turned out to be
an excellent one.
Other investors bought shares at the bottom of the market in September last
year and have made excellent returns so far. Did we gamble or did we take
calculated risks?
If you want to be a successful risk-taker you will have to do your homework.
Like Gary Player has been saying for over 40 years, "the harder I practice
the luckier I get".
You can equally apply this homespun advice to your investments. And how do
you "practice" when it comes to investments. You read, you listen, you
watch, you go to investment seminars, you discuss, you join an investment
society, you consult. You do whatever you have to to become a successful
risk-taker. And then -like Gary Player -you keep this up for 40 years or
more.