MAKING MONEY FROM MONEY.
My fascination with investing, trading and compounding started in the first half of 2007 when a couple of stockbroker acquaintances of mine first introduced me to the concept of allowing money to work for you, i,e, making money from money.
As an undergraduate in my penultimate year, I vividly remember my first reaction I when I saw people invest in the capital markets and reap returns – Life is so not fair! I thought. This is because I saw firsthand that, in life, you really do not get rewarded for simply working hard, NO, you get rewarded for working hard at working smart.
That got me SO excited, so I invested! And unfortunately for me, I got lucky and made astonishing returns the first few times I invested.
Soon, like your typical newbie investor, I started to see the financial markets as a get rich quick scheme.
Immediately, I started a campus based investment club, and even hosted a massive campus wide seminar advocating financial freedom via stock market investing. But because all I was focusing on were the rewards, I never really saw the inherent risks.
I arrogantly and naively attributed the growth of my portfolio to my personal investment competence, not realizing that the stock market was generally upbeat, with the Nigerian Stock Exchange All Share Index (NSE ASI) growing on increased FDIs, even in the absence of solid underlying economic fundamentals.
I see now that those were all warning signs of an impending bubble burst. Alas, back then, I was mistaking beta for alpha ( don’t mind me, I like using technical words, makes me feel smart).
I never took time to really understand the risk management and profit producing process involved in capital investing and obviously I got my fingers badly burnt in a short while. Why? My expertise and knowledge base were very limited relative to the investment opportunities which I was pursuing.
What did I learn from all this?
Your amount of wealth is directly proportional to your amount of wisdom, ALWAYS.
If you have a $1,000,000 idea or mindset, your bank account will eventually grow to $1,000,000 as you deploy those inner resources and abilities. However, if you get a $ 1,000, 000 bank balance (say, from an inheritance, a stroke of luck, a gift or something) yet your mindset and attitude remains at a $1000 benchmark, then, eventually your bank account will shrink to reflect your mindset.
Do not try to grow your bank balance. Rather, focus on growing your value as a person and then deploy that improved value in a structured environment and watch your networth grow also.
It is your responsibility to understand your investment edge, refine your investment edge and only then can you exploit your investment edge consistently. And on handing over your portfolio to someone else to manage, that is a matter for another day.
All I will say for now is know how your investment portfolio is being managed. This is because if things go bad, you have more to lose than the fund manager does.