Investing Tips & Advice

Capital Investor Tips & Advice

This is what I have learned from being an Investment Consultant for more than a decade..

Important tips for every investor.

General Tips:

1. The Investing Triangle

Imagine that investing is like a triangle formed by three main axis: i) return II) risk and iii) time. Whenever you push one of the three axis, the other two will have to expand. Therefore, if you wish to have great returns then mathematically the incorporated risk becomes higher and the timeframe needed to achieve these returns becomes larger. Trust no one who promises high returns with low risk in short time-frames.

2. The Relation between Return, Risk and Time

Don’t focus entirely on your investment potential return, focus additionally on the incorporated risk and on the projected timeframe. Balance always your investing decisions between these 3 factors and you will be rewarded. If you ignore time you will probably get bored while if you ignore risk you will probably get bankrupt.

 Two Categories and Ten Sources of Risk at TradingCenter

3. Portfolio Diversification -The Golden Rule of Investing

There is only one rule in Financial Investment that can be mathematically proved true. That rule is portfolio diversification. Don’t put all your eggs (investment positions) in the same basket. Differentiate in terms of different industries, different types of investments, different currencies and even different economic zones.

Macroeconomic Tips:

4. The Risk-Free Ratio

Theoretically, there is only one risk-free ratio in any economy. The risk-free ratio at any given time is the return of the Government Bonds. Therefore, whatever investment return exceeds that ratio it is by definition incorporating some forms of risks.

5. Basic Macroeconomic Cycle

Identify the master Economic Cycle of any Economy, before investing to that economy. Nowadays, central banks in all over the world are imposing monetary policies to form and to take advantage of 7-9 years economic cycles. The main weapon used here is the level of interest rate which defines the level of liquidity in the market and therefore the level of investment and consumption. The perfect time for investing is when each economic cycle begins and the worst time for investing is when each cycle is about to end.

6. The Currency Market

As concerns the currency market, you should be aware that there is an historical correlation between: i) inflation ii) interest rates and iii) the exchange rate of every economy.

When it comes to Businesses:

7. Cash-Flows are more Important than Earnings

The capability of any business to generate earnings is important, but what is more important is its capability to generate cash-flows. Larger cash-inflows than cash-outflows will determine in a very high extend if a business proves successful in the long-run. Businesses fail most commonly due to weak cash-flows than due to weak earnings.

 

8. Corporate Strategy is the King

Cash-flows and earnings are important, but what is further more important is business strategy. Corporate strategy is everything. If the strategic position of a company is expected weak in the future then this company will probably fail long before. There are three main strategic advantages: i) Quality premium ii) Cost leadership ii) Limited Resources. If a company doesn’t possess one of those three strategic advantages then it will face troubles in the future. 

9. The Quality of the Management is Crucial

When you are about to invest either in stocks, hedge funds, venture capitals or ETFs, two things really matter: i) the past performance and ii) the quality of the management. Give extra weight to the quality of the management.

10. Evaluate Investment Opportunities with Flexibility

Don’t try to use the same rules to evaluate different investment opportunities, instead be very flexible. For example if you want to evaluate a business in a static industry you should use different criteria then evaluating a business in a fully dynamic industry. Generally speaking, the accepted P/E ratio in a static industry is maximum 8 (that means Price / Earning < 8 times) while the accepted P/E in a dynamic industry can easily exceed 50 or even 100. Dynamic industries should better be evaluated using the P/E/G ratio (meaning Price / Earning / Growth Percent) than the common P/E ratio.

 

◘ George Protonotarios, Financial Analyst -George at Linkedin

Investing Tips & Advice, for Capitalinvestor.org

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Growth, Time & Risk

Capital Investing is all about Balancing Growth, Time and Risk.. 

Balance always your investing decisions between Growth, Time and Risk and you will be rewarded. If you ignore time you will probably get bored while if you ignore risk you will probably get bankrupt. 

(G. P. TradingCenter.org)

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Diversify Strategy

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