What is investment?
Investment is the allocation of resources or inputs to a project with the objective of growing these resources or yielding a profit. Now enough of the fancy diction, in layman’s terms investment is putting money in a business venture with the hope that it will grow (capital gain) or earn a profit (interest or dividends). So the purchase of any asset that earns a profit is investing. Buying a house to rent out, taking out a fixed deposit, opening a money market account, buying stock in a company, buying currency in the hopes that it will appreciate are all examples of investing.
Dynamics of investment
1. I am sure that by now all of you have heard the age old saying...’the greater the risk, the greater the return.’ no statement I know captures the dynamics of investment better than that. It is possibly also the reason most people have shied away from investing because of the misinterpretations of this statement. The connotations associated with the word risk. All this shall be dispelled and better understanding of these put in place.
2. Investing is extremely volatile. This also captures the idea that the greater the return the greater the volatility
3. Investing is NOT gambling! It is a calculated risk…there is no way the richest man in the world gambled his way there
4. Investing is a lot of fun. Consider it a game and money your score card and it will be far more rewarding as a way of life.
Why single stock?
All the investment vehicles I have mentioned above have their own pros and cons, we will explore all of them with time but our main focus will be the stock exchange and its derivatives.
Why the stock exchange?
1. Contrary to popular belief, it’s probably the easiest to understand from the list mentioned above.
2. They consistently outperform the rest of the economy in terms of growth rate versus risk profile.
3. They are very exciting and highly liquid, which you will learn the importance of later on.
I hope this has the investor in you salivating…Watch this space
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