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The 12 Baskets – Managing Your Portfolio of Investments

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The 12 Baskets – Managing Your Portfolio of Investments

I was introduced to stocks at the age of 16, but I did not begin active investment until the age of 20. For 4-years I read any book on the stock market, still reading and still learning. In my first 5-years of active investment in stocks, I never made a loss on any stock I bought, I thought I knew how the market runs and just could get in, have an exit price, apply a little greed and exit just after I hit the target, little did I know I was in for a major surprise 15-years after I found myself working for a major player in the market that I knew nothing about the stock market!

Now that we have embraced technology and one could trade the stock market without having to call your stockbroker to place a mandate to buy or sell, I mean from the comfort of your home you could trade the capital market live! I thought was in for making millions, 5% upward movement in price a day in a week I could make an average of 20%, in a month 80%, never late to the market, never late to take position. What was I thinking about to think I could always have it my way in the capital market? Long story short, my first few trades were losses! After over a 20months of trading I was practically hoping to recover my capital and out of the market for good! Fingers burnt lessons learnt, the market is not a respecter of persons not even Warren Buffet.

One important lesson to remember is that human behavior in the marketplace remains constant. Investment decisions should be the product of a rational trade-off between risk and return, however they generally reflect an emotional response to fear and anxiety. Most investors tend to expect prevailing trends to continue and fail to accommodate change adequately; no stock will keep going up forever! Too   many investors seem to have forgotten the rule that there is no free lunch in the marketplace.

Here are my 12 baskets of advice on managing your portfolio;

  1. Good investment management practices are complex and time consuming, requiring discipline, patience and consistency of application.
  2. Too many investors fail to follow some simple, time-tested tenets that improve the odds of achieving success.
  3. A fool and his money are soon parted- capital becomes a perishable commodity if not handled properly. Be serious, pay attention to your financial affairs, take active and intensive interest if you don’t your advisor would most definitely not.
  4. There is no free lunch- to every investment there is a risk, set reasonable objectives base on history, never to be safe than sorry.
  5. Don’t put all your eggs in one basket- Diversify, spread your investment across different sectors, a different turn in the economy will not affect all sectors.
  6. Never overreach for returns- remember leverage works both ways, more money has been lost searching for returns. Little greed is not good!
  7. Spend interest, never principal- If at all possible, take out less than comes in, then your portfolio grows in value and lasts forever.
  8. Investment is not a sport- rather it is individualized efforts to achieve some predetermined financial goal balancing your appetite for risk with the desire for enhance capital wealth.
  9. Invest for the long term- you are not a trader, only traders’ trade, investors invest and it takes time for an investment to grow. Invest for the future not tomorrow, next week or next month.
  10. Never buy a stock you are not willing to hold when there is a crisis in the market/economy.
  11. When share prices falls, buy more to average down the cost rather than panic sell, remember you are investing for the future.
  12. Time to say goodbye, just like everything with a beginning will have an ending, as you grow older, have less of your investment in stocks and more in real estate.

“It’s what you learn after you know it all that counts- Earl Weaver”

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