Why and How To Invest

At the beginning of the New Millenium, the concept ofinvesting, of "doing something" with your excess capital, hasnever been stronger. While this applies to citizenseverywhere, nowhere has it hit home as much as in the U.S.where many of our clients live and do business.
SAVINGS SHMAVINGS
Various "analysts" and "experts" have moaned that thesavings rate of the U.S. citizen has gone negative. Whatthey fail to understand...or choose to ignore...is that savingsno longer represents anything in the United States. First,there is inflation, always understated by the government,usually by at least 50%, which uses various tricks andnumbers games to convince the unwary that all is well. Thevalue of savings is constantly going down.
Additionally, the American Internal Revenue Service haschosen to tax even the negligible rate of return on savings,actually punishing sound savers for doing so. The "market"has responded by pulling savings out of the banks andrisking it on what is arguably one of the strangest bullmarkets in history.
KEY QUESTIONS
But two questions come to mind: (1) Why should anyoneinvest? and (2) how should they go about it?
While we would not claim to have the definitive answers toeither question, we feel we have enough background to atleast offer some suggestions.
WHY DO IT AT ALL?
1. To get a better rate of return than one can get on banksavings.
2. To create a large enough egg to retire on without havingto sacrifice your current quality of life, particularly if youhappen to live longer than expected.
3. To provide for the ever growing cost of your children'suniversity educations.
4. To safeguard yourself should major illness strike.
5. To ensure that your spouse and children are not leftdestitute should you die.
6. To provide funds for travel, study, rest and recreation.
7. To pay off debts and obligations and to live as credit-freeas possible.
8. To take full responsibility for your life and not rely ongovernment doles, pensions and/or Social SecuritySystems should they fail, a distinct possibility in thefuture.
9. Add
10. Your
11. Own
How?
Here we're going to explore a lot of possibilities. Some ofthe thoughts are ours; others came from sources whomwe've come to both admire and respect. In any case, you'llneed to choose what works for you.
First, we believe you need to work out who you areas an investor. Much of what you do should be based onyour own personality, knowledge and what makes you feelcomfortable.
We suggest that you honestly evaluate the kind of personyou are. Do you really like risk? Are you the kind of personwho likes to plunk down $20 to $100 bets on impulse at theracing track or casino?
Or are you the kind of person who, 50 years ago, would havebeen exclusively into blue chips, utilties and similar "safe"investments, holding on for the long haul? And who, if hedoes visit a casino, plays quarter slot machines and avoidsthe expensive games?
Maybe you are a combination of these, wanting solidinvestments, but willing to take a risky flyer now and then?
Whatever the case, we feel you need to consciouslyrecognize who you are as an investor, what kind of playeryou'll be at the table, no matter in which country that tablemay be set up. (There is nothing "wrong" with being at oneend of the spectrum or the other. One is not "better" than theother.) The reason is simple: If you invest contrary to yournature, you are not going to be happy with your investmentstrategy nor will you sleep well.
CONSERVATIVE?
If you're strictly conservative, making a lot of high riskinvestments will leave you feeling out of control, nervousand very out of sorts. You won't trust your choices, will tradeemotionally, getting out of those which frighten you becauseof their volatility, just when you should be letting some ofthem ride. Or, worse, remaining in losers long after theyshould have been dumped, buying more of that stock on thedownhill run, desperately trying to recoup your losses. Youremotions will seriously colour your choices, never a goodinvestment method.
GAMBLER?
At the opposite end, if you're risk taker, trading slow moving,stodgy and conservative stocks will leave you totally boredand unsatisfied with what you're doing. You'll miss theexcitement of the game and will constantly be wanting to getout of the slow movers into something with more pizzaz, asthe Americans put it.
So, to quote the old adages, "Know Thyself" and "To ThineOwn Self Be True." Only in this way will you find satisfaction,happiness and peace of mind.
Secondly, we believe you need to work out aphilosophy of things in which to invest. Find areas ofinvestment which interest you. If you understand energyissues, for instance, there are plenty of both high risk andconservative stocks and commodities in which to invest.You'll enjoy continuing to study the field, happy that you areworking with known values.
If you have a good background in technical or biomedicalissues, you'll be far more knowledgeable in your investmentchoices sticking to these areas.
One group which we've studied, relies on what they call"freedom" issues, companies which produce goods orservices which empower individuals, which makes thingseither cheaper to buy or easier to use. They scour the world,willing to make investments anywhere they find solidlymanaged companies which are making a difference in theway we live, "freeing" us up to expand our lives. We find thisparticular philosophy a sound one. However, you may havean entirely different one which suits who you are and whatyou know. Keep to it.
Thirdly, you need to plan some constant study.Never before in the history of humankind has there beensuch a rate of change as we're experiencing now. And therate itself is increasing. What was sound six months ago isunworkable today, simply because some new technologyhas entered the picture. Old industries, once consideredfinancially sound, are being overtaken by newertechnologies...or being undercut by the same industrieslocated in other countries with a far lower labor rate andmaterials cost.
Technology changes even the old. Robotics, reallyinstituted by the Japanese whose "old" infrastructure wascompletely destroyed during WWII, almost totally overtookthe American auto industry which was relying on 1930stechnology in old and very outmoded factories. Thatparticular US industry either had to change...or fold. Theychanged. Note, however, how that changed the fate of theautoworkers unions. They, too, had to adapt, to go with thenew realities.
CONSTANT EDUCATION
So you must keep constantly educated as to the newestdevelopments in your field of interest. And no longer canyou restrict your education to just what is happening in yourown country. Changes and improvements in othercountries will rapidly impinge on world markets. Keepingup with such changes is your best insurance that you'll stayahead of your investment game.
GLOBAL VISION
Fourthly, Learn to Think Globally! It would bedifficult to overstate this critical strategy. Virtually all marketsare now international. India, as an example, has some ofthe best computer programmers in the world. Theirsoftware products are world class. They can compete withanyone. And they do it at wages lower than most of the"developed" nations. If you're investing in technologies andignore the information and products coming out of India,you're playing with a short deck.
Other countries, too, are growing in their competitivestructures. Individuals, as never before, are acting ascorporations, able to do business from anywhere in theworld which connects to a modem....or a satellite. Creativeentrepreneurs, carrying six pound laptops, are completebusinesses, able to compete with anyone, anywhere.
ADAPTATION
And Fifth, learn to adapt. Even if you're aconservative, work to become used to the idea of beingready to change your game plan quickly when newinformation becomes available. Sticking with the old, whichhas already become outmoded even though it's only a fewyears - or a few months - old, is a recipe for financialdisaster. Think of being a chameleon, ready to shift to thenew background while still maintaining your sense of whoyou are and how you best work.