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Discover The Exact Methods You Need To Create
Financial Success ... Without Having To Turn
Your Life Upside Down To Achieve It!
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All self-made millionaires utilize the power of investing to get
their money to make them even more money.
They get their money to start working for them so they can
eventually stop working for money.
Unless you master this money skill of investing, you will never
achieve financial fre-edom and abundance.
However when it comes to investing, most people share the painful
experience of getting burnt in the stock market or in mutual funds
(unit trusts).
'If I had kept all my money in the bank, I wouldn't have lost half
it.' 'After so many years of buying and selling, I find that after
all the effort I have merely broken even'.
'I should have kept the money in the bank instead.' ' Every time I
buy a stock, it seems to go down.'
Do you share this experience with most investors?
If so, you are one of many people who have developed a phobia of
investing and have formed the belief that 'investing is risky'. As
a result, you are resigned to keeping your money 'safe' in fixed
deposits earning a measly 2%-3%.
This belief is compounded by the fact that we are taught by finance
courses, banks and financial advisors that 'High risk leads to high
return'. In order to earn high returns, you must be a risk taker!
This is totally rubbish! All of us have been brainwashed by this
inaccurate generalization. In fact, the greatest investors in the
world are NOT risk takers.
They are in fact, very risk averse. Warren Buffett, the world's
greatest investor, who achieved 24.7% returns per year for the last
49 years is extremely risk averse.
His fundamental principle in investing is 'capital preservation.'
He would rather not make any money if there is a chance of losing
it.
His first rule in investing is 'Never Lose Money.' His second
rule is 'don't forget rule number one.' As a result, Warren will
only invest in a stock if it has very low downside and a very high
probability of success of at least 90%.
I follow the exact same philosophy. Again, many people perceive
that because of the businesses I have started and the investments I
make, I am a risk taker.
In actual fact, my top value is 'security.' I am extremely risk
averse and will only invest in a business or stock if they is a 95%
chance of winning and even if I lose, the loss is negligible.
To be a winning investor, you must adopt this same principle! You
must be risk averse! You must always follow the principle of
'capital preservation.'
Now, you may ask me, ' If high risk does not lead to high returns,
then what does?' The answer is 'financial intelligence.' High
financial intelligence leads to high returns!
When you have high financial intelligence, there is little risk,
because you know exactly what you doing. When you don't have strong
financial intelligence to fully understand the business behind the
stock, then investing becomes very risky.
Risk is contextual. How risky an activity is depends on the level
of competence of the person doing that activity.
For example, if I told you to climb a mountain where there is a pot
of gold at the top, would it be risky? Would you have to take a
high risk to achieve the high return?
Yes! It is risky for you because you have never been trained in
mountain climbing and do not have the necessary safety equipment.
There is a high chance you will fall and die!
However, for a professional & experienced climber who has scaled
Mount Everest twice without oxygen, would it be risky? No! Why?
Because his high level of competence eliminates the risk. To him,
it would be low risk, high return.
Take another example, if I were to ask you to drive a formula one
race car at 260 km per hour round the racetrack in order to win a
grand prize, would it be risky?
Again, to you it would because you are not trained. It would be
suicide and I would recommend you not do it at all. However, to
Michael Schumaker, it would be low risk and high return, because he
has been trained to do it.
So is investing risky? Again it depends. If you are like the
majority of people who have not been trained and have low financial
intelligence, then it is highly risky!
It's like climbing that mountain with no training at all. Indeed,
to them it is high risk, high return. I would suggest that they
keep their money in the fixed deposit.
However to Warren Buffett, investing is 'low risk, very high
return' because he has a high level of competence in investing. So
again, you can see that high risk does not lead to high return, it
is high level of competence that leads to high return.
To Your Success,
