There are five major ways to invest, this is an overview for investing for beginners to determine where the best places are to invest money now. Avoid the risk with safe investments and win with high returns by exploring how the best investors in the world invest their money. Let’s be creative with our money and add our own personal approaches to the master’s methods.
Value Investing:
Investor Benjamin Graham, the writer of The Intelligent Investor, was a role model investor for his student Warren Buffett. Graham believed investing was actually buying a company. He researched valuable companies by reading their earnings reports. Graham would determine profit against loss and their market capacity to determine if a company was going to be a good deal. He would only buy stocks priced lower than their value using his method. His stock valuation method secured him as little risk as possible.
He said:
“You must never delude yourself into thinking that you’re investing when you’re speculating.”
“Buy when most people, including experts, are pessimistic, and sell when they are actively optimistic” and “The market is a pendulum that forever swings between unsustainable optimism (which makes stocks too expensive) and unjustified pessimism (which makes them too cheap). The intelligent investor is a realist who sells to optimists and buys from pessimists.”
Initially, the deals that Warren Buffett talked about were using Graham’s method. You can find out about financial statements and use the 10-K for the company’s annual report to determine where a company is headed based on the market capacity, what percentage of the market they dominate, and then determine the value. A newer concept adds disruptive technologies to the thought process. The book “The Innovators Dilemma” has some great examples of where companies go wrong. I think it’s important to understand what might go wrong when planning your investments.
Growth Investing
They are buying stocks expected to grow. These are smaller companies that don’t have years of history to research. You look at their target market, how much of the market they are already in, and based on their competitive advantage and likelihood they will grow more. Some of my favorite investors look for these growing companies to hold till the stock is valued higher and the company seems to have maxed out its market, then they sell.
I don’t buy an IPO when they hit the market because irrational enthusiasm prices the stock so high it’s unreasonable. Wait a few months for the regular people to lose excitement and buy only if it’s a deal.
“Even a great company can be priced too high if there’s a lot of glamour attached to it.”
Philip Fisher
Learn to be able to look into the future. This is an interesting one because smart people can do it, I have a formula that I’ve learned from many amazing investors and their countless books. Instead of guessing who the next big companies will be based on today’s technology and tomorrow’s existing innovations, look at the companies providing the solutions to solve tomorrow’s innovation’s problems. History has proved that regular people don’t do this; they buy what’s hot, what’s already priced high because of the hype.
For example, let’s use the car industry:
What’s tomorrow’s technology? Electric cars
What do electric car manufacturers have to buy to make their cars work?
What services do electric car companies need
Now look at who is doing the above, how big their market is, and what percentage do they dominate, is there a chance they will increase or decrease? Who are their competitors? Now ask yourself if you are willing to invest and wait 2-10 years to see the benefits, if not, then don’t bother.
Index Funds
A portfolio of stocks and bonds that are thrown together in a fund for passive management. I’m not fond of this style of investing. When I was a kid, my mom bought a couple of those big bins of clothes to sell in her boutique in Belize. She only did it once because 20% of the goods were quality and 80% were garbage- which means unsellable. When she determined that the cost of the bin was more than the value of the 20% she could sell, she determined she was losing money with these bins.
Index funds have some good stocks in there, but a lot of it is who knows what, and I can’t get the 2008 subprime mortgages out of my mind. I’m a paranoid person and prefer to have control over what I know than a bunch of what I don’t know.
That said, a lot of people like index funds because they give you a passive option to investing. Fidelity, Vanguard, and Ark have funds an investor can take advantage of. Graham Stephan on YouTube argues their benefit, and many others like to buy index funds.
Warren Buffett
Quality Investing
Thomas Rowe Price, Jr. is called the father of quality investing. He advocated a buy-and-hold approach to investing. Buying secure companies who have already proven their value and a good balance sheet. Initially, quality investing was in bonds and real estate. Later, investments in enterprises were added. Companies that have been around a long time and offer good dividends can make you money annually.
When looking for quality investments, be sure to consider how much of their market they capitalize on, who’s their CEO- what’s their history, and whether they have what it takes to manage the company or not. Look at their financial statements and consider what disruptive technologies could potentially cripple them. If they are innovative and invest in research and development with a good CEO, great management, and no big issues, then they might be a good match. I like to choose companies I’m already familiar with. I’m in IT, so I go for the giants I trust and hold on to them.
Thomas Rowe Price Jr.
Crypto Investing
Be very cautious of investing in crypto; it’s not a regulated exchange, meaning that an entity can create a project, get everyone hyped up investing in it, and then just pull all the money out and say it’s over and didn’t make it. If you invested in that project, your money is gone, and you likely won’t ever see it again. That’s called a rug pull, and it’s quite popular in crypto projects editing this post in 2023, it’s pretty much common knowledge how these scams have been pulled off.
What is Cryptocurrency?
A cryptocurrency is a digital or virtual currency designed to function as a medium of exchange. It uses cryptography to secure and verify transactions as well as to control the creation of new units of a particular cryptocurrency. In essence, cryptocurrencies are limited entries in a database that no one can change unless certain conditions are met. Hopefully, these are legitimate; a lot of the time, they aren’t.
Banks have been transferring digitalized currency for ages from and to central banks. Crypto is different because these currencies are outside of the banking systems. In 2020, banks bought into the crypto market heavily, this is part of the reason why the prices have gone so high so fast. I’m a skeptic about Crypto, my concern is – look what’s happening to XRP in late 2020 or early 2021. There is a lot of uncertainty, and many of the currencies will end up being Ponzi schemes.
As with any investment, you need to pay close attention to the market value of cryptocurrencies and all the news related to them. Coinmarketcap is a solution for tracking the prices, volumes, and volumes of market turnover of most existing cryptocurrencies. For buying, I like Binance.us or Coinbase, but I don’t trust either of them. Hacking has been on the rise. If you still want to buy, then use a wallet.
Before making any purchase, think first, be vigilant, use your gut, and be ready for your next opportunity. Do your research and have fun learning so that when the next opportunity comes, you will be ready. Subscribe for more investing posts. Have a lovely day.
