Don ’ t short-change your finances
It s tough handling other people s money in a world ’ where Benjamin Graham s ’ two rules of investment reign supreme. Rule No 1, the father of security analysis said, was never to lose. Rule No 2 was not to forget rule No 1.
When I joined the JSE more than 48 years ago, a veteran stockbroker gave me my first lesson in managing money. Selecting good shares, he lectured, was easy; managing client expectations was not. Remember, he said, you can fool around with a man s wife, but
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not with his money.
Looking after your savings requires as much work and energy as running a small business. You should devote enough effort to your financial health as you do to your spiritual, mental and physical wellbeing. You cannot deal with your monetary matters part time. And, if you haven t the
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inclination to apply your mind industriously, employ a professional. But that s where
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the trouble starts. When I was growing up, clever students in my form became doctors, lawyers and engineers. The battlers were comfortable finding jobs with insurance companies or on the stock exchange. So you can understand why the financially well-off appear reluctant to hand their hard-earned wealth to the guys who finished in the bottom half of the class. Warren Buffett put it more eloquently: Wall Street is the only place where people arrive in a RollsRoyce to seek advice from those who catch the subway.
After four decades, I have identified elementary errors investors make that underpin their poor performances. Many build their wealth without an overriding plan.
Over the years they keep adding new shares and products that catch their fancy. Their list of holdings gets longer and longer until the portfolio resembles a small unit trust. My personal preference is to buy 20-25 counters, linked to themes likely to dominate future spending in the global economy. And if a security no longer fulfils the purpose for which you bought it, don t hang around for
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disappointment. Get out. George Soros said it s not a matter of
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whether you are right or wrong. It s how much you make when
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you are right and how much you lose when you are wrong.
It always mystifies me how usually sensible and levelheaded people lose all sense of reasoning in making investment decisions. The more incomprehensible and more dangerous the proposal, the more they are prepared to flutter in the hope of super-big returns. In the same way that it s
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chancy choosing a life partner by ticking boxes on a dating app, picking an investment entails cultivating the same special bond that draws lovers together. There might be an attraction on first meeting, but it takes time for that special relationship to flourish. The more you learn about each other, the more you strengthen the accord.
So, before you invest in a company, it s critical to know
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how it makes its money, how its operations evolved and in which markets it operates. Most crucial is management s
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integrity. The deciding factor is whether the executive is selfserving and loves money more than the business. Stock-market success can t
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be learned from textbooks or charts. It comes from hours of dedication and devotion. As Buffett says: Some things just take time. You can t produce a
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baby in one month by getting nine women pregnant.