The Art of Investing – Part 1

The Art of Investing

Part 1

In my opinion, investing is an art. Truly successful investors need a variety of skills and tested methods in order to properly evaluate investments and overcome obstacles. I do not mean art in the sense of paintings, drawings, or sculptures (fine arts), but art in the sense of applying gained knowledge and skill to effect a desired outcome or goal. As an investor, the ultimate goal is to make and keep profits.

Here are 3 definitions of art (from which I apply to my investing:

  • The application of knowledge or power to practical purposes
  • Skill, dexterity, or the power of performing certain actions, acquired by experience, study, or observation.
  • Skillful plan; device.

Application of Knowledge: Every investor needs to apply their knowledge to practical business and investment principles and purposes. Some of this knowledge is learned through education, such as accounting, finance, marketing, and business administration classes. Some knowledge is passed down from investing mentors, such as an investment banker uncle, or a daytrading cousin. A lot of investing knowledge you learn and experience yourself. Making bad investments will (or should!) teach how to avoid mistakes in future investments. Good investments can help confirm your rationale and methods, which you can apply to future investments. Learning the knowledge is half of the process; faithfully applying your learned knowledge is the crucial element.

Skillfully Performing: As in applying your knowledge, successful investors need to keep strong investment performance. The best way to maintain your cash flow and keep your investing profits is by being an active investor. People who are not actively involved with their investments – reviewing past and current investments, and researching new investments – will not be as successful as a person who takes an active role in their investments. I know a lot of people who invest money in the stock market, real estate, or businesses, but they take a passive role, hoping their investment will be successful. They aren’t keeping up with news, trends, and other factors that could be detrimental to their investments, and they end up losing money. As with learning, putting money into an investment is one step, but the major step is actively monitoring, researching, and developing your investment.

Skillful Planning: All investors need to develop their investing plan. Much like a business plan, your investing plan states your goals and the process by which you will achieve your goals. Your investment plan should also contain the strengths, weaknesses, opportunities and threats of each investment you plan to make. You must do your Due Diligene in each investment you plan to make. For example, in the stock market, you must analyze a companies accounting statements – balance sheet, income statement, cash flow, statement of owners equity – to get a feel for the companies management and how they run their business. Is it profitable? Do they have a lot of liabilities? How fast is cash coming in? How long do they keep inventory? Are insiders buying or selling? With stocks, you must also analyze news, company PR statements, charts, and historical prices. After you perform Due Diligence research, you may decide this particular investment is not for you or looks fishy. Every investment you make requires you to do your Due Diligence in researching the investment, and only then can you develop your plan on making your investment the most successful. Think of your investment as a business that earns you money. Develop your investment plan as a business plan, in order to make the most profits and most successful investments. The more time you spend developing your plan of action, you will be better prepared to make and meet your investing goals.

Why I invest

I have many reasons why I invest my money.

The primary reason I invest is to secure my future. My family is not rich. I do not have a big inheritance coming. I, like most people, have to work hard for what I have. I do not get cars, houses, and money handed to me on a silver platter. Investing allows me to work hard now, so that when I am older, I can live a comfortable, financially secure life. Investing gives me the opportunity to build a solid financial foundation, benefitting me for the rest of my life, and future generations of Investing Winners.

I treat investing as a business. The investing business is not easy. Years of learning, reading, and research are absolute necessities for being a successful investor. The learning, reading, and research never end. Each day I am building on my knowledge and understanding of the financial game. The same is true to be a successful entrepreneur or business leader. I must understand the nature of the game and the players involved. I must calculate risks, odds, and rewards, just like a CEO. I must have a solid financial plan or strategy in place, or else my business will fail. I am my own boss. As such, I must make business and investment moves with precision, thoughtfulness, and attention. If I don’t do my due diligence, my investing business will fail and I will be out of a job. Investing gives me complete control over my job, which I love. I never liked having a boss ordering me around, making me work weekends, or doing the dirty work to make them look good.

Investing also allows me to explore myself in ways my previous jobs have not allowed. I can realize my full potential.

Investing is partly logical. I do a lot of research. Each day I wade through fact and fiction. Logical thinking is a requirement for investing. I must completely understand my investments and calculate my risk versus rewards. Without logic-based decisions, investments are based on emotions. Emotional investing will bankrupt me. Emotions cause one to think irrationally, making poor, rash decisions without utilizing calculated logic and reasoning.

Investing is also partly mental. I think like a winner. I trade like a winner. I invest like a winner. Every successful investor has had huge losses and has made numerous mistakes. The mental game is not allowing bad investments and mistakes ruin your investment attitude. I learn from my bad trades and horrible investments, rather than dwelling on them and letting them mess with my head. Investing takes nerves of steel. In the long run, most stocks and investments will go up, but short term they may go down. This is where many investors fail – they see one bad day in the stock market or a bad year in the real estate market, and they get discouraged. These people are mentally unfit and unprepared to invest and trade successfully.

Money. This reason is self-explanatory. Money is another reason why I invest. My entire life I didn’t have much of it. But I learned finance, accounting, business, economics, trading, and real estate. Financial and business knowledge helps me understand how money works, and more importantly, how to make it. New cars, gigantic houses, and flashy jewelry do not interest me. Doing what I want to do, when I want to do it, however, does interest me. I can’t take a trip to Europe if I don’t have any cash. Money is the means to do what I want.

Investing allows me to build my own future. To determine my own outcomes. To develop myself mentally and emotionally. To make money. To get out of the rat race. To have financial freedom.