Financial Success- A Complete Strategy

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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.