4 Golden Principles of Investment- Quality, Value, Diversity and Time.

by khalid on 26/09/2012 · 0 comments

The World Bank recently released its semi-annual Global Economic Prospects report, which is able to track down the global growth situation.

And It’s good to know that world economy accelerated at the beginning of 2012, but got decelerated from their vehement position due to European stimulus efforts (e.g. LTRO) began to fade and tensions flared once more in the financial market.

Investment in this state, will bear fruit or not, indeed a big question. Many factors are responsible for driving the performance of global financial market. However, none of them is likely to undermine the path and attractive returns of a sensibly constructed investment portfolio.

A common reality for all the investors is that- the enemy lurks within us through our mental mistakes and behavior rather than in the external forces that are able to influence financial markets.

Whether you are investing in shares, property, depositing cash, you often take irrational decisions when you get down managing your company. Yet you will find simple strategies that strip out the emotional human element of investing that we can use to overcome those hardwired instincts.

First and most important way to protect against those mental mistakes is to have a sound investment framework based on four golden principles: quality, value, diversity and time.

Quality: An important Mark

The only way to identify quality companies is through rigorous analysis- but even professional analysis does not always get it right. Well, there is a clear conception, why quality companies are able to make profits and pay dividends, that to-do so consistently. To clarify further we have just unveiled a little fact about quality companies.

You know, that quality companies are not slaves to the market fashion. Quality companies range from new players with fresh ideas to well-established firms. Typical attributes include sound longer term earning potential, a good return on equity, capable management with a solid track record, a sound balance sheet and finally a reliable core business franchises.

This typical attributes can be found in household names like Coca-Cola or American Express, even relatively small business and little known companies.
If you buy a quality company at the right price then you will be able to get through a severe market downturn.

Value- Important Aspect of Sensible Investing

The second principle of sensible investing is value, and it is the function of a quality and price. Looking at the graph of the economy you will some of the major disasters have taken place as people pay too much for those, which we call quality assets.

Tracking down some real life experience like- Entrepreneur Alan Bond, who led the syndicate that wrested the America’s Cup from New York Yacht Club in 1983, learned this the hard way. In mid 80’s he bought Australia’s Nine TV from media ruler Kerry Packer, for a huge amount.

Alan sold it back in a few years at a fraction of his cost price. Nine Networks were a quality company, both when Bond bought it and later when he sold it. The difference is that Packer was right in evaluating its value and with this understanding, he rose to become one of the richest people in the world.

Key to assess value and quality is to know whether an asset can produce an attractive return relative to its risk.

Diversity- Merging Limits For Profit

Diversity third aspect of investment does have its own ruling ways. Diversification is all about having investments across different asset classes, countries and funds.
You may prefer to invest under a diversified portfolio, and they typically end up keeping investments that have delivered better returns and weeding out of those that have delivered lower returns. They are often known to have left with a portfolio of over-valued assets, which is highly vulnerable in a market downturn.

Time- Most Precious for Refined Investment

An ultimate test of a successful portfolio comes with time. Being an investor, you should know the right time to invest in the market. Sluggish economy means lower profits, so you prefer to invest when you can reap more.

It is essential to take a long-term view and develop a plan that takes into account your entire investment time horizon, rather than focusing on return in your latest portfolio report. Long term is made up of lots of short-terms just one after another. And among them some will be good, others bad, but it is the only trend over the time that you really need to worry about.

You may instill automatic discipline into your investment related strategy, to help avoid the knee-jerk actions to newer circumstances. You can commit to a regular savings plan whereby, an amount of money can be automatically invested each month irrespective of market conditions.

Investing upon a diverse range of quality investments at prices that represent good value and investing this for a sufficient time is a reliable way to build wealth.
Evaluate your needs and aims before you start investing and if you can scale it down then apply these principles to make your investment proper and definite.

Author’s Bio: Jenifer Bingham, author of this article, is closely associated with renowned contact center services for over a decade. She has adept knowledge of lead generation, telemarketing, answering services, customer care, help desk outsourcing and various other inbound and outbound call center services.

Stay tuned to BelltheBull Blog for more on Principles of Investment !

 

 

Related Posts Plugin for WordPress, Blogger...

Leave a Comment

Previous post:

Next post: