WEALTH IS SPELT R-I-S-K!

Life is all about risk.

Anything worthwhile involves risk and the quality of your life is determined by the risks you take and the risks you avoid.

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To get into school, you must face the risk of writing an admission exam and embrace the possibility of failing. To get married, you must face the risk of proposing to the woman of your dreams and embrace the possibility of a resounding ‘no’.

The pursuit of financial freedom, success and wealth is no different. If you do not like taking risks, you probably will never be wealthy. Simple.

As an African youth, born and raised in a ‘third world’ country, I was already automatically in a high risk situation anyway.

These risks include:

1. The Risk of Limited Government Created Opportunities.
2. The Risk of Poor Social and Economic Infrastructure.
3. The Risk of Under Education (when globally benchmarked).
4. The Risk of Under Employment.
5. The Risk of Job Insecurity.
6. The Risk of Poor Pension and Retirement Packages.

The list is endless. Highlighting these points just made me realise that I was kinda describing the Eurozone recently (I am just kidding, or am I?).

But seriously, in view of these imposed risks, I asked myself, what are the odds that I will ever achieve financial freedom, if I continue to live like I had always done? Not likely.

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So, I decided to switch risks. I decided to choose my own risks – the risks of investing and trading.

And as I ventured into the jungle of trading and investment, (I call it a jungle because only the strongest survive there), I had to sit down and seriously ask myself questions.

Am I really willing and maybe, even able, to embrace the risks involved in investing, trading and compounding by deliberately beginning to develop a systematic, well researched and well defined approach to wealth creation, wealth preservation, wealth multiplication, and wealth succession?

Or,

Would I rather avoid investment risks altogether and simply live an unintentional financial life, hoping, wishing and praying that I will someday in the undefined future, supernaturally (we West Africans love “divine wealth”, whatever that means) stumble into sustainable and ever increasing wealth?

Of course you know what I chose to do.

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Before choosing, I was a financial ostrich, burying my head in the sands of risk aversion caused by self induced financial illiteracy, consoled only by the false promises of job security and a robust retirement package eventually, watching helplessly as the ever accelerating rate of inflation increases the cost of living and erodes the value of my savings by the day.

But now I see myself as a financial eagle, who is isolating himself for the painful, disciplined process of acquiring, applying and refining knowledge, so that I can launch out to spot prime profitable opportunities afar off and sensing the wind-like trends of the business and investment world, so that I can ride both the stormy and the calm currents alike with the same level of ease and profitability in the years to come.

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Now I no longer avoid financial risk.

Rather I am now a lifelong student of risk management. I seek out risks.

I seek to identify them. To assess them and to select the particular risk that suits me. To embrace that risk and to manage that risk in a way that it will produce rewards that I can enjoy if profitable and lessons that I can learn if unprofitable.

This is what memories of a fulfilling life are made of! The challenges we faced and the informed risks we took to overcome those challenges!

We won’t all be financial markets traders or investors, but we can all start to look for little ways of demonstrating our choice to be financially free.

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For example, I refuse to allow my spending exceed half of my earning. I live within my means, always, so that I can save towards investing. I keep growing my knowledge base and improving my skill sets while saving because real wealth involves combining capital with competence. And because I am more interested in actually being rich than in appearing to be rich, I rarely buy things I cannot afford. Impulse spending and competitive spending are some of the many reasons why people find it hard to save. (Have you watched the movie “Keeping up with the Joneses”? Awesome movie!)

I keep talking about savings, because anybody can start saving, anytime.

Saving alone will not make you rich, but it will teach you some of the habits and disciplines necessary for wealth creation. Habits like budgeting, delayed gratification, amongst others. And have you noticed that the more you have saved, the greater the pressure to invest so as to generate returns?

In conclusion, Malcolm Gladwell in his book Tipping Point (or is it Outliers now?) gave a convincing argument that aside from personal effort, there is the effect of time and chance in determining the success rate of a new generation. (Please get and read his books, if you have never read them).

I agree with Malcolm and like never before, now is the time for every young African to embrace risk and take informed action, because Africa is poised for unparalleled growth in the next two to three decades. Africa’s time is now.

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Read more about that in my previous post here: https://mytrustfunddreams.wordpress.com/2013/03/26/15/

Like I said earlier, risk taking is not restricted only to the financial markets. Find out how Andrew Carnegie, history’s greatest steelmaker and once of the richest young men of his time handled his own kind of risk.

Read more here: http://www.forbes.com/sites/objectivist/2013/04/12/to-be-born-poor-doesnt-mean-youll-always-be-poor/

So, keep looking for little ways of demonstrating your commitment to financial freedom. And take those little risks. In parts 2 and 3 of this article, I will be sharing the steps I am taking to transform myself into an informed risk taker.

Remember, life generally and wealth specifically, is spelt R-I-S-K.

Selah.

Olufukeji Adegbeye CWM.

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REACTIVE INVESTOR OR PROACTIVE INVESTOR?

I start this post with two sayings from Ray Dalio, arguably the largest hedge fund manager in the world.

“The way to look at any market… is to look at the buyers and sellers and to understand who’s buying and who’s selling and what the motivations are behind that.”

Too many investors are reactive decision makers… if something has gone up, they say ‘ah, that’s a good investment,’ they don’t say ‘that’s more expensive.’  It’s the most common mistake in investing.  You have to look ahead and say what is the transaction? What will determine the buyer or seller?”

More about Ray Dalio here:

http://www.forbes.com/pictures/eehd45kkie/ray-dalio-3

I was reading his comments yesterday and it struck a chord within me because I have been making the transition from a reactive investor to a proactive investor.

A proactive investor, regardless of the market he invests in, is one who has developed a way of anticipating what the smart money in that market is doing and how to piggyback their entries and exits.

He always seeks to answer four basic questions, using whatever approach (fundamental analysis, technical analysis or both).

1. Where is price going – uptrend, downtrend or ranging?
2. By what volume – by what minimum number of basis points in that direction?
3. How do I know when I am wrong?
4. What do I do if I am wrong?

Well, based on my quest to trade proactively and not in a reactive manner, I always seek to answer the above questions and I only take a trade when I am able to answer all four questions.

For example, based on my market timing tools, as shown below, I have maintained a buy bias for a particular stock Guaranty Trust Bank Plc since 11th March and I remember several investors/traders saying that the stock cannot go beyond N25, thereabout, but I disagreed because they all couldn’t give me a logical backing as to their bias.

Yesterday, as I had anticipated, price spiked up all the way to N27.5. As anticipated, I find it instructive that GTB opened up Q2 2013 with a spike upwards, thus confirming my bias.I now expect profit taking at N28, short to medium term and N38, in the much longer term.

Yesterday’s move left some of those investors/traders befuddled, but I was not surprised. Rather, I was surprised that they were surprised. But then again, I personally do not know many traders who use a systematic approach as the basis for their investments in the NSE. The average investor is at best discretionary and at worst, befuddled. I hope this post draws them out.

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Am I always right? No.

But the trading edge is not in how often you are right or wrong. It is in how much you make when you are right and how much you lose when you are wrong. So seek to make more every time you are right than what you will lose every time you are wrong.

A systematic proactive approach to investment trading is the secret to every successful trader/investor.

For me, technical analysis of the Nigerian Stock Market is my proactive approach.

I watch order flows, observing the NSE All Share Index as well as market ebb on a rolling quarterly basis . Then I target technical momentum trades on fundamentally solid blue chip stocks.

So, I ask you, what is your proactive approach?

We learn everyday.

Olufukeji Adegbeye CWM.

DISCLAIMER: This article and all its recommendations are purely for educational purposes. Margin trading is highly risky and is not suitable for all kinds of investors. Kindly consult you financial advisors before making any decision based on the content of this post.