Becoming an investor is one of the best decisions an entrepreneur can make in the pursuit of long-term solvency and security.
“If you want a shot at becoming wealthy, you need to do more than simply earn money,” says David Weliver, founding editor of Money Under 30. “Most importantly, you need to hold onto the money you earn. And then, you need to grow your money. In order to grow your money, you need to learn how to invest.”
Before you enter the investment world, you first need to gain an understanding of the underlying principles of an amazing investment portfolio.
If you want a shot at becoming wealthy, you need to do more than simply earn money.David Weliver, founding editor of Money Under 30
From fine art and real estate all the way to blockchain and emerging cannabis companies, there are numerous ways to kick-start your journey. A successful portfolio will contain all various types of investments like these, and more.
Aside from diversification, you should also look for companies with a positive revenue stream instead of ones burdened by debt. With the basic principles in place, let’s take a look at the five effective tips that will help you make a successful investment from the very start.
1. Have a clear goal in mind
Contrary to popular belief, not all investors are looking to expand their wealth – some investors want to focus on capital preservation, and even capital appreciation. All three goals will require a different approach to company selection and market analysis, so it’s important to define long-term goals for your assets and your portfolio.
For example, while investors looking to preserve their capital in a stable environment would typically invest in solidified blue chip companies, investors focusing on wealth accumulation would focus on up-and-coming small cap companies and emerging markets.
If you are looking to increase the value of your assets over time, on the other hand, then you should consider a range of market caps, taking into consideration the stage a particular asset is at in its lifecycle.
2. Do your research and stay informed
One of the essential marks of a successful leader and entrepreneur is a keen eye for detail and an unquenchable thirst for knowledge. In other words, you need to do your research before settling on a market and industry, but more importantly, you need to be in the know. This means that no market trend, event, or expert opinion should pass you by.
You can start this process by researching industry trends online and keeping up with the latest goings-on in your market. There are countless authority blogs and magazines that industry experts are updating on a daily basis. You can also use market intelligence software like Pitchbook and Owler to gather the best private and public market data.
Keeping up with the latest happenings will allow you to deepen your scope of research following a significant event or shift in a particular market, and thus find a lucrative opportunity. Keep your eyes peeled at all times and make sure to research relevant markets on a daily basis.
3. Find the most lucrative opportunities
The next step in the investment process is weeding out the successful and prospective companies from their underperforming counterparts.
It’s important to keep a close eye on the markets that are experiencing growth and have a significant potential for higher demand and popularity in years to come, such as the recent rise in cannabis stocks that took place in 2018, and that are projected to rise in the near and far future.
Following this mindset and utilizing analytics data from the authoritative sources in the industry, you can easily compare the current holdings of individuals companies to the market forecasts, allowing you to predict fluctuations, monitor growth, and move on to the next step of the screening process. Finally, you are able to narrow down your search.
Keep in mind, “The most important factor in being a successful investor is not the stocks and funds you pick. Successful investing depends on: Choosing proper asset allocation – the overall mix of bonds, stocks, and cash you hold in your portfolio,” Weliver adds. And “Making and sticking with an automatic investment plan – this way you avoid making terrible, emotionally-charged decisions—like selling at the bottom of a market crash.”
4. Narrow down your search with investor presentations
Once you have zeroed in on a few prospects, it’s time to dig deep into the inner workings of a company and assess whether the brand is worth your investment in the long run. While you could turn to browsing through cumbersome and comprehensive reports and financial statements, a more efficient decision would be to turn to investor, or corporate, presentations.
These documents are specifically crafted for investors such as yourself, and they contain all of the information you might be interested in, sans the fluff or the more nuanced data intended for specific departments.
In this document you will find cash flow performance and revenue statements, growth plans and long-term opportunities, successful milestones and more. Once you have assessed the viability of the company in the competitive market, it’s time to focus on the final crucial consideration.
5. Look where the company is going
The future is where your ROI resides, and even though the past performance of a company matters, it’s not something that should worry you unless you see a distinct rise-and-fall pattern. If a company is operating nominally and gaining momentum, and if the market forecasts show a clear sign of future growth, there is no reason why you shouldn’t invest.
That said, you should keep the “earnings momentum” in mind at all times, so have the company accountants deliver a financial report detailing the previous eight quarters, along with their projections for the near and far future. Look for negative patterns, assess the growth curve, and make your decision.
Becoming an investor is one of the most stable and secure ways of realizing long-term solvency and affluence, but that doesn’t mean success is a given. To make your investment dreams come true, you will need to pick the right stocks, so let these five tips guide you towards long-term success in the industry.
Lauren Wiseman is a marketing specialist, contributor to bizzmarkblog.com and an entrepreneur. She helps clients grow their personal and professional brands in the fast-changing and demanding market, strongly believing in a holistic approach to a business.