(Click image to enlarge)
How willing one is to give of oneself
The combination of
Assets, that which is owned outright, and Debt, that which is borrowed
leveraging Assets, can yield a supply of money that can be used for making more
money, Investing.
If a person has few assets, Lo, and is reluctant to
borrow, Lo, he is a Miser and his money supply will likely be insufficient to
create income.
If a person borrows excessively on his assets (Hi) but
his assets remain Lo, his Liberal tendency can become problematic.
If a person has Hi assets but refuses to borrow on them,
his Conservative tendency will hold him in check.
The right mix of Assets and Borrowing, where
borrowing adds to assets, gets the
successful result, a Winner.
The dark circle in the grid is a subjective evaluation
of where the investor is at this time in his quest for success; it should be
dated and revised from time to time when revision is indicated.
Identifying the means of investing is a necessary step
in the process of creating wealth and success depends on increasing Confidence
through Practice.
When both are Lo the choices may seem Childish when
reviewed from a more knowledgeable point of view.
When Confidence is Hi and Practice Lo, the resulting
choices are those of a clown who is not taking the situation seriously.
When Practice is Hi and Confidence Lo, the results may
be losses whose lessons go unheeded.
When Practice and Confidence are Hi, the results yield
the pleasure that comes with success.
The Dark Circle indicates where one is on the review
date and this should be updated from time to time.
In order to be successful investing, one has to follow a
strategy and tactics; this can be termed a Buy/Sell Scheme.
As with getting results, the two determinants ate
Practice and Confidence. The evolution
of the scheme occurs with practice; as the scheme is proven, confidence grows.
When both are Lo, one can expect losses until the scheme
is perfected.
Then as Practice moves toHi,
Confidence may remain low and with a proven scheme the results will be
break-even or better.
If the scheme is good but the application of it is
willy-nilly, in other words, if Confidence is Hi but Practice is Lo, one can
expect the losses to continue.
When Confidence and Practice are Hi, the expectation is
Profits.
As with all of these, the current situation is marked by
the filled circle with the date the assessment is made.
Any business venture needs to have a Tracking System for
measuring, assessing, and reporting Results.
Any system must be understandable and allow for recall of pertinent data
that will allow these.
If Knowledge and Recall are Lo, the system is Risky in
that it may not give the required data.
If Knowledge is Hi but Recall is Lo, the system is
probably too complicated to be useful.
If Recall is Hi but Knowledge is Lo, the system may
yield data that doesn’t truly represent what is happening, Delusional.
If Knowledge and Recall are Hi, the system is fulfilling
the purpose and reliable information is the yield.
As with all of these, the current situation is marked by
the filled circle with the date the assessment is made.
Acquisitions are mostly acquired by purchasing
them. There is a process that is
followed in order to acquire valuable assets.
The acquisition must be identified and then the purchase
negotiated. The source of the
acquisition and often dictates the degree of negotiation available. Of course, anything can be negotiated but
there is a framework in place.
Retail is generally the source of shopped acquisition
and the level of negotiation is usually Lo; Identification is limited to what
is shown by the dealer.
Internet is Retail expanded and one can identify many
sources of a type of acquisition sought, the level of negotion is
usually Lo.
The Private Deal is likewise limited to what is offered
but negotiation is Hi as an understanding is reached.
The Marketplace is like a trading floor where buyers and
sellers come together the transaction approaches Auction.
Where are you now? The current situation is marked by the filled circle
with the date the assessment is made.
The age-old advice in stock investment is. “Buy low,
sell high.” The inside of that advice is
a strategy is finding good stocks to own and then when to hold them and when to
sell them. If the Price-Earning ratio is
Lo and the stock has potential but has not been discovered by the market, the
action is to Buy.
As the stock is discovered but the P/E Ration remains
Lo, it is prudent to hold the stock.
But if the P/E ratio increases, discovered or not, the
optimum thing to do is to Sell the stock and profit from the transaction.
This strategy is best applied to companies that are not
paying dividends but investing profits back into growth.
The current situation is marked by the filled circle
with the date the assessment is made.
One of the most intriguing aspects of investing is the
Buy/Sell strategy. The “hold” option
often touted as being the best is just as often not the best. One must adopt a completely objective view of
the investment, make it, then monitor the activity until it is prudent to sell.
If one lookes at
Holding Time and Value, one can label the various scenarios accurately. If the value increase is Lo and the Holding
Time Lo, it can be said that the investor is being speculative.
If Value remains Lo and Holding Time bcomes Hi, the
investor has become passive, i.e. not paying attention.
If the Value increases to Hi during a Lo, or short,
Holding Time, the investor has been the recipient of luck, tantamount to
winning the Lottery.
If the Holding Time and Value are both Hi, the analysis
done by the investor is validated and the investor can consider him/herself
successful.
The current situation is marked by the filled circle
with the date the assessment is made.
Asset appreciation applies to investments of all sorts,
stocks, collectibles, art, real estate, even inventory. Being able to find and invest is a function
of knowledge and experience.
It would behoove one to become a professional in a
market, where a market is defined as a “family” of assets. As Knowledge and Experience grow from Lo to
Hi, the investor passes through various stages from Amateur, to Student, to
Technician, to Professional.
The difference between Technician and Professional is a
blend of the two factors that allows judgment based on more than the result of
applying analytical tools.
Participating in a market also requires work along three
lines: the first line is on oneself, to acquire objective knowledge, the second
is with others of like mind to develop that knowledge and temper it with shared
experience, the third is work to advance the market itself.
The current situation is marked by the filled circle
with the date the assessment is made.
The Risk of Loss associated with investing in
appreciating assets generally increases with how long the asset is held. An examination of the scatter chart above
shows the comparison of Investment Value and Time held and the increasing Risk
of Loss.
The chart would indicate a certain pessimism but then a
wise investor is always capable of taking both view, the pessimistic and the
optimistic. He/she generally invests
with an optimistic view but watches and acts with due weight given to the
pessimistic.
After acting the slate is erased clean and the cycle
starts over again.
The general theory is that investments increase in value
over time. This is not always the case
and one must have an objective view of the market in which he/she is investing.
Find the type of investment being considered and look at
the possibility for Return on Investment (ROI).
When considering investments, carrying costs need to be factored and
offset the rise in value. For example,
with land there are taxes, with Real Estate, other than your residence there is
maintenance and taxes, with precious metals and art there is safe storage to be
considered, with animals there are other risks such as disease and death to be
considered.
The risk of loss involved with trading in assets, which
can be improved by adding value to them, ranges, depends on the type of asset
involved and the useful life of that asset.
When the Investment or Value is Lo, considering leverage
upon acquiring the asset (the amount of money put up by the buyer compared to
the amount borrowed to purchase) the risk of loss is Lo because objective
others deem the value to be well founded.
For depreciating assets, such as animals and equipment the risk of loss
is Hi; Land and Artwork usually requires a Hi investment but the risk of loss
is lower; the surety of gain is likewise
lower.
Wise investing, i.e., knowing market and maintaining an
objective judgment of assets acquired for investment is a basic pre-requisite
for success in Value Added Asset investments.
Value Added Assets tend to increase in value over time
and the Return on Investment is calculated on the capital that the investor has
to use in acquisition. Since the amount
of capital is the investment for the purpose of calculating ROI, the leverage
that is available has a large effect.
Land, Art, and Animals have less value when used as collateral for
investment than do Real Estate and Equipment and, therefore, tend to have a
lower ROI.
The exception is that one tract of land that becomes
essential as a building site or that animal is discovered to have a
peerless bloodline.
The cost of owning an asset has to be considered prior
to making the investment. The same
factors affect the Investment as in previous discussions but it has to be noted
that holding some assets require considerable expense.
The category “Junk” is added here to make the point that
there are some assets that require less in terms of Investment and have almost no
Carrying Cost. Other assets should be
judged for their relative carrying cost comparing them to the lowest.
The most serious piece of advice one can take to heart
is that of objectivity. The ability to
look at an investment without emotional attachment when buying and, or more
importantly, selling it. If a person
remains flexible in his opinion and objective in his reasoning, then he or she
will be a winner in the investment game.
It can be seen that when Objectivity and Flexibility or
Lo the situation is one of a forced action, usually a sell. The other quadrants are intuitively obvious
to the casual observer.
The current
situation is marked by the filled circle with the date the assessment is
made. In this sense, it is important to
have a checklist of measurable items to determine one’s current situation. Emotional reactions are sometimes difficult
to recognize otherwise.
The most serious piece of advice one can take to heart
is that of objectivity. The ability to
look at an investment without emotional attachment when buying and, or more
importantly, selling it. If a person
remains flexible in his opinion and objective in his reasoning, then he or she
will be a winner in the investment game.
It can be seen that when Objectivity and Flexibility or
Lo the situation is one of a forced action, usually a sell. The other quadrants are intuitively obvious
to the casual observer.
The current
situation is marked by the filled circle with the date the assessment is
made. In this sense, it is important to
have a checklist of measurable items to determine one’s current situation.
Emotional reactions are sometimes difficult
to recognize otherwise.
