Clarify your investment goals

LAST week the main focus was on responsible investment. The article tackled how, in spite of the perceived risks, people can still invest their money to ensure that they have a better future.
This week the main focus is on how to clarify your investment goals so that you can have a clear vision on where you want to see your money beyond tomorrow.

Below is an article by the Zimbabwe Shareholders Association on how to clarify your investment goals:
“The master investor knows why he is investing: he finds intellectual stimulation and self-fulfilment. He knows his purpose.

You could be investing for your retirement so perhaps your underlying goal is security. Other investors seek independence. Or your primary goal could be the welfare of your children.

As you think about your reasons for investing you will put your financial goals in their proper context, and realise they are secondary, a means for supporting some “higher” purpose.

Then ask yourself whether you are dedicated to achieving those goals — or whether they are just dreams.
The difference is motivation. A dream is something you would like to have but you are not really motivated to achieve whereas a goal is something you are willing and often happy to work towards. For the master investor there is no doubt, he lives and breathes investing 24 hours a day. It is his life.

Unless you see yourself following in Buffet and Soros’ footsteps, you are unlikely to go quite this extreme. And you do not need to.
What you need to do is commit the time and energy it takes to achieve your investment objectives, whatever they may be. Only through dedication will you achieve them.

It should be immediately obvious that losing money will only make it harder for you to achieve your underlying goal.
How can losing money possibly help you achieve security? Will you be more secure or more independent with less money? Clearly not.

That is why like the master investor, your first financial goal must be preservation of capital.
Keeping what you have — however, much or little it is. By the same token, spending more than you earn will eat into your capital or send you further into debt.

Only by living below your means can you build capital in the first place, keep what you have — and then add to it.
Preserving capital and living below your means are the mental attitudes to money that set the wealthy apart from the poor and middle-class.
They are the foundation of wealth. Adopting them is the only certain road to wealth.

What’s Your Investment Niche?
One of the little known and usually overlooked secrets of the successful investor is that he specialises.
Even investment elephants like Buffet and Soros occupy a small fragment of the multi-trillion-dollar investment marketplace. Not having billions of dollars to invest, your niche can be even smaller and more focused than the master investor’s.

What defines your investment niche is your circle of competence. Like the master investor, you should only act when you know what you are doing, which means keeping within the limits of what you know — and never straying into the unknown.

So it is essential you define your own circle of competence. To do so, simply ask yourself:

•  What am I interested in? What class of investment and what aspects of investing fascinate me?

•  What do I know now?

•  What would I like to know about, and be willing to learn?

The more detailed and specific you can be, the better. And do not be put off if everyone laughs at the area you have chosen.
For example, a doctor, leverages his medical knowledge by investing exclusively in health-related stocks.

One uses the skills he learnt as a floor trader to support himself by day trading stock index futures — usually from a resort somewhere in the world via the internet.

There is bound to be something that you do or know that you can build into your own personal investment niche.
Just as important is to be aware of what you do not know and understand. As Warren Buffet says: “What counts for most people in investing is not how much they know, but rather how realistically they define what they don’t know.”

Defining your circle of competence is an essential step — but it is not enough. The hallmark of the true master investor is that he is never tempted to step outside the boundaries of his investment niche.

Saying no to that temptation can be one of the most difficult disciplines for the novice investor.
But if you are truly fascinated by the class of investments you have selected, like the master investor you will be focusing on the process of investing rather than the investments themselves. This is one shield against straying into the unknown.

Another powerful antidote to temptation is success. As one of the investors put it, “Now that l know how to make money, those ‘greener’ fields look decidedly brown.

“Of course, for the beginning investor success is something to look forward to, not to rely on today. What you can do today is create, as the master investor has done, an investment philosophy that will anchor you within your circle of competence.”

For more information on the above subject contact the organisation at [email protected]
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