Entrepreneurs, while highly ambitious and creative, don’t always make it as investors. The world of investing is not like any other academic or creative endeavor where being all-knowing and skilled can immediately lead to success. There are psychological barriers that can prevent a person from consistently extracting profits from their investment portfolio. From revenge trading to unreasonable fears of missing out on a potentially profitable stock, the list goes on and on. Fortunately, it’s not that difficult to knock these barriers down. Here are five ways any entrepreneur-slash-budding investor can make it in the seemingly complex world of investing.
Look at the Big Picture
Macroeconomics renders a big picture perspective of what’s happening in global financial markets instead of just one. It gives you an idea of a country’s overall economic health and where prices of underlying assets are headed in the coming weeks, months, and years. Similar to how an entrepreneur looks at economic developments on financial news sites and channels, search for investments through a top-down analytical approach. This way, you filter through bad apples and find the best possible investment opportunity to park your capital.
Manage Cash Flow
Every serious entrepreneur knows about the importance of cash flow management. It can make or break any business, regardless of how good the product or how competent the team is. It’s the same way when it comes to investing. For investors, your cash flow is the capital allocated into investments as well as the available funding that’s held as margin. Avoid trading too large positions otherwise your account can get margin called by your broker. For stock investors looking to day trade, you should know that FINRA requires at least $25,000 in your account to be able to day trade.
Spread your capital into risky and safe assets. Indexes and bonds are generally considered to be safer bets, alongside real estate and precious metals. These assets tend to generate continuous buyer demand and are less volatile than relatively newer assets. Setting up a self directed IRA and maximizing your 401(k) contributions are also good assets for risk-averse entrepreneurs. Tech stocks, foreign exchange, and cryptocurrencies are some examples of relatively riskier assets to buy and short. Regardless of which asset you choose to build your portfolio with, make sure to practice proper risk management measures, and cut them short before they can deal any significant damage to your account.
Read As Much As You Can
Entrepreneurs are natural bibliophiles. It’s how they satisfy their curiosity and creativity. Reading is a skill that can prove useful to your investing. Whether it’s just some random article posted by a fellow investor or a study done by a prominent investment firm, absorbing this relevant information can help you make better investment decisions. Of course, avoid being reactive to every piece of information that comes your way. Filter out background noise and don’t heed every advice to buy or sell as gospel.
Don’t Settle For the Short-Term
Similar to growing a business, investing takes time. While there’s nothing stopping you from bruteforcing your way into profits overnight. It’s tempting to scalp, which is going in and out of positions in a matter of minutes, with the promise of quick cash. However, as with any business, it’s risky to only plan and target short-term gains. Your focus should be on how to sustainably grow your investing capital. That being said, pay yourself every now and then. It can be difficult to maintain the same level of focus and motivation if you only ride the downturns.
Investing and entrepreneurship have similar characteristics and requirements for success. Discipline, risk management, and market research are all key factors that can make or break your investment portfolio. Use the tips above to protect yourself from the unpredictable and unforgiving financial markets.
by: Angela Pattridge