(Seven) 7 life lessons on how to become a good investor

 

In investing, do not buy or sell based on what your friends, neighbours or that fancy stock guru is buying. You do not know their realities. You do not know their risk appetite, information ratio, manoeuverability, asset allocation and incentives. Actually you know nothing about those you wish to imitate. Robert Cialdini described this behaviour as ‘social proof’. It is the tendency to see an action as more appropriate when others are doing it. It may not always be the best for you.

Do not be in a hurry to grow up. You are always asking when you will get independent, when you will make money, when you will be involved in discussions we adults take part in. Some things take time. Growing up is a process. Enjoy it. Your science book explains how a seed turns into a sapling, then into a shrub and later into a tree. Some seeds wither away, not all turn into a tree and bear flowers and fruits. We nurture, support, love and sometimes admonish you—it’s all a part of growing up. You may not realise it, but at every stage you have a set of responsibilities, independence and authority. If you keep comparing yourself with us grown-ups, it will only add to your misery.

As an investor, do not be in a hurry to see your investments grow. Investing is a process. It is not a journey towards building an X amount of retirement corpus, but a journey to achieve financial independence. The sooner you achieve it, the better. Not all investments will pay off. But all’s well if it ends well. Worrying over every investment and why it went right or wrong will only make you miserable.

Do not wile away your time. All play and no work got Jack nowhere. Remember the ant and the grasshopper’s story? The one about the ant that worked tirelessly through the summer while the grasshopper played, sang and danced, only to learn the value of hard work when winters arrived? I want you to twist the story a little. Be the ant many times but do be the grasshopper sometimes. The fine balance is difficult to achieve, but then who said life was easy? Also, don’t be careless.

Likewise, in investing, average investors can only earn a finite amount. There is no substitute to growing wealth but by saving more. Do yourself a favour, watch two bad movies less in a month, skip an expensive meal at times and put that money to good use. Take care of your money, because if you don’t, no one else will. Rihanna filed a suit against her manager for swindling her cash and he had this to say, “Was it really necessary to tell her that if you spend money for things you will end up with things, and not money?” Pretty much sums up all you need to know. Things don’t make us happy, experiences do. The trick is to not get off the Hedonic Treadmill at once. Keep reducing the speed and some day you may not feel the need to be on it at all.

Do not get too attached and emotionalabout your friends, mates and belongings. It only hurts. People who you think are your ‘friends’ will change. Situations will undergo a metamorphosis. Let go. Destroy cherished ideas by confronting them. Be honest with yourself if not with anyone else.

Similarly, do not fall in love with any of your investments. The environment will change. Views will change. Stocks, sectors and asset classes which gave fabulous returns in the past may not do so in the future. Confront your realities. A friend, who has made tremendous money from real estate in the past 15 years, is still in denial. He still thinks it is the best place to make money. Maybe he is right, but if only he was a little more open to other investment ideas, he would not be stuck with illiquid assets. We have heard stories about dud stocks turning around, but some stocks will never get back to their glorified prices even if the index peaks.

Do not disrespect anyone. Respect not only your parents or grandparents, but also your teachers, your extended family, maids, drivers and every person you come across. It is idealistic, but at least try. This beautiful aphorism by a Jesuit priest Baltasar Gracian—“The wise are the least tolerant, for learning has diminished their patience”—is true. At this age you are far from being wise, so learn tolerance.

When investing, respect the opinion of those around you. You can learn from anyone—that new intern in your office, the pantry boy or your fiercest competitor. Above all, respect markets. The day you are too sure of the direction the markets will take is also the day you can celebrate Fool’s Day. The best investors are also the most humble ones.

Success does not mean more medals or money. It is perfectly okay to come second in race, as long as you know you tried your best and are able to work harder the next time, instead of saying that you can’t do it. It is okay to feel stage fear while you are up there reciting Shakespeare as long as you stand upright and are ready to recite one more.

In investing, do not confuse success with a higher CAGR on your portfolio or with your ability to identify multi-baggers. To grow in life, you need to push yourself out of your comfort zone, but in investing, it is imperative to operate within it. A good night’s sleep is the best return on your investments. Never compromise on it.

Develop a hobby. It could be a sport interest, an art or a craft. It can act as a great stress-buster, especially when you are grown up and immersed in worldly pressures or pleasures. Going back to your hobby is like going back to the one you love. You may ignore it, exploit it, use it, abuse it but it stays with you and calms your riled nerves when you need it the most. Your hobby truly loves you back. So have one.

Some look upon investing as a science, some think it is an art, but I have always thought that investing is a craft. That is because it can be improved with practise. The finer nuances of investing may be known to many, but they are followed only by some. Investing will test you, your emotions, your strategies, your best laid plans and ideas. It is only how you hone this craft and improve it every day that will set you apart.

Ten Things to Consider Before You Make Investing Decisions

Financial Navigating in the Current Economy: Ten Things to Consider Before You Make Investing Decisions

Given recent market events, you may be wondering whether you should make changes to your investment portfolio.  The SEC’s Office of Investor Education and Advocacy is concerned that some investors, including bargain hunters and mattress stuffers, are making rapid investment decisions without considering their long-term financial goals.  While we can’t tell you how to manage your investment portfolio during a volatile market, we are issuing this Investor Alert to give you the tools to make an informed decision.  Before you make any decision, consider these areas of importance:

1.         Draw a personal financial roadmap.  

Before you make any investing decision, sit down and take an honest look at your entire financial situation -- especially if you’ve never made a financial plan before.  

The first step to successful investing is figuring out your goals and risk tolerance – either on your own or with the help of a financial professional.  There is no guarantee that you’ll make money from your investments. But if you get the facts about saving and investing and follow through with an intelligent plan, you should be able to gain financial security over the years and enjoy the benefits of managing your money.  

2.         Evaluate your comfort zone in taking on risk.  

All investments involve some degree of risk. If you intend to purchase securities - such as stocks, bonds, or mutual funds - it's important that you understand before you invest that you could lose some or all of your money.  Unlike deposits at FDIC-insured banks and NCUA-insured credit unions, the money you invest in securities typically is not federally insured.  You could lose your principal, which is the amount you've invested.  That’s true even if you purchase your investments through a bank.

The reward for taking on risk is the potential for a greater investment return. If you have a financial goal with a long time horizon, you are likely to make more money by carefully investing in asset categories with greater risk, like stocks or bonds, rather than restricting your investments to assets with less risk, like cash equivalents. On the other hand, investing solely in cash investments may be appropriate for short-term financial goals.  The principal concern for individuals investing in cash equivalents is inflation risk, which is the risk that inflation will outpace and erode returns over time. 

3.         Consider an appropriate mix of investments.   

By including asset categories with investment returns that move up and down under different market conditions within a portfolio, an investor can help protect against significant losses.  Historically, the returns of the three major asset categories – stocks, bonds, and cash – have not moved up and down at the same time.  Market conditions that cause one asset category to do well often cause another asset category to have average or poor returns.  By investing in more than one asset category, you'll reduce the risk that you'll lose money and your portfolio's overall investment returns will have a smoother ride.  If one asset category's investment return falls, you'll be in a position to counteract your losses in that asset category with better investment returns in another asset category.

In addition, asset allocation is important because it has major impact on whether you will meet your financial goal.  If you don't include enough risk in your portfolio, your investments may not earn a large enough return to meet your goal.  For example, if you are saving for a long-term goal, such as retirement or college, most financial experts agree that you will likely need to include at least some stock or stock mutual funds in your portfolio.

4.         Be careful if investing heavily in shares of employer’s stock or any individual stock.

One of the most important ways to lessen the risks of investing is to diversify your investments. It’s common sense: don't put all your eggs in one basket.  By picking the right group of investments within an asset category, you may be able to limit your losses and reduce the fluctuations of investment returns without sacrificing too much potential gain.  

You’ll be exposed to significant investment risk if you invest heavily in shares of your employer’s stock or any individual stock.  If that stock does poorly or the company goes bankrupt, you’ll probably lose a lot of money (and perhaps your job).  

5.         Create and maintain an emergency fund.  

Most smart investors put enough money in a savings product to cover an emergency, like sudden unemployment.  Some make sure they have up to six months of their income in savings so that they know it will absolutely be there for them when they need it.  

6.         Pay off high interest credit card debt.

There is no investment strategy anywhere that pays off as well as, or with less risk than, merely paying off all high interest debt you may have. If you owe money on high interest credit cards, the wisest thing you can do under any market conditions is to pay off the balance in full as quickly as possible.  

7.         Consider dollar cost averaging. 

Through the investment strategy known as “dollar cost averaging,” you can protect yourself from the risk of investing all of your money at the wrong time by following a consistent pattern of adding new money to your investment over a long period of time.  By making regular investments with the same amount of money each time, you will buy more of an investment when its price is low and less of the investment when its price is high.  Individuals that typically make a lump-sum contribution to an individual retirement account either at the end of the calendar year or in early April may want to consider “dollar cost averaging” as an investment strategy, especially in a volatile market.  

8.            Take advantage of “free money” from employer.  

In many employer-sponsored retirement plans, the employer will match some or all of your contributions.  If your employer offers a retirement plan and you do not contribute enough to get your employer’s maximum match, you are passing up “free money” for your retirement savings. 

9.         Consider rebalancing portfolio occasionally.  

Rebalancing is bringing your portfolio back to your original asset allocation mix.  By rebalancing, you'll ensure that your portfolio does not overemphasize one or more asset categories, and you'll return your portfolio to a comfortable level of risk.

You can rebalance your portfolio based either on the calendar or on your investments.  Many financial experts recommend that investors rebalance their portfolios on a regular time interval, such as every six or twelve months.  The advantage of this method is that the calendar is a reminder of when you should consider rebalancing.  Others recommend rebalancing only when the relative weight of an asset class increases or decreases more than a certain percentage that you've identified in advance.  The advantage of this method is that your investments tell you when to rebalance.  In either case, rebalancing tends to work best when done on a relatively infrequent basis.

10.       Avoid circumstances that can lead to fraud.

Scam artists read the headlines, too.  Often, they’ll use a highly publicized news item to lure potential investors and make their “opportunity” sound more legitimate.  The SEC recommends that you ask questions and check out the answers with an unbiased source before you invest.  Always take your time and talk to trusted friends and family members before investing.

specific ways that you can increase your profit margins.

 Now that you have a better idea of the amount of profit that retailers are taking in, it’s time to look at the specific ways that you can increase your profit margins. 

Here are 10 things you can try:

1. Avoid markdowns by improving inventory visibility

Markdowns are notorious profit-killers, so avoid them whenever possible. How do you do that? Start by improving how you manage your inventory. You should always have a handle on the merchandise you have on hand, as well as what your fast and slow-movers are. This will help you make better decisions around purchasing, sales, and marketing, allowing you to sell more products and reduce the need for markdowns.

2. Elevate your brand and increase the perceived value of your merchandise 

It’s interesting to see that cosmetics retailers have some of the best margins in retail. According to experts, one reason behind this is the fact beauty and cosmetics brands excel at creating personal and emotional connections with customers.

Beauty is a category on fire…The price value equation is quite good, cosmetics make people feel better about themselves and foster strong customer loyalty, and the merchandising creates a sense of exploration…”

– Laura Heller, Editor, Retail Dive

She continues, “We ran a story earlier this year titled “Why beauty will continue to rule retail in 2018” that outlines some of the reasons behind this trend. The product category creates a kind of personal connection with shoppers, unlike many other consumer goods. The price value equation is quite good, cosmetics make people feel better about themselves and foster strong customer loyalty, and the merchandising creates a sense of exploration — something the off-price retailers have also done quite well. Depending on the brand, packaging, and marketing attached, the profit on each small item can be really high.”

Chris Guillot, Instructional Designer of Merchant Math and Founder of Merchant Method, offers a similar view, saying that “cosmetics brands do a great job with brand management, playing to their customer base at an emotional level — status and lifestyle.”

According to Guillot, “Retailers of all sizes and stages of growth can focus on their unique brand positioning as a way to differentiate from their competitors and increase perceived value.”

3. Streamline your operations and reduce operating expenses

“Retailers often focus on pricing strategies when searching for ways to increase profits, but most should try to start with streamlining operations,” says Krista Fabregas, a retail analyst at FitSmallBusiness.com

“First, cut overtime and excess staffing as much as possible, then focus on areas of waste. Minimize supply: spend as little as possible, and ditch the fancy printed shopping bags, tissue fill, and excess packaging wherever possible. If you’re not using an efficient point-of-sale to tie inventory, sales, and marketing under one system, consider making a switch to a low-cost system. This makes your entire store and staff run more efficiently.”

Another great way to streamline your operations is to automate specific tasks in your business. By putting repetitive activities on autopilot, you can reduce the time, manpower, and operating expenses required to run your business.

Go through all the tasks that you and your employees complete day-to-day, and see if you can automate any of them. Are there cumbersome activities that are eating chunks of your time? Do you have to re-enter any data or perform certain steps more than once? Look for solutions that can take care of them for you.

Take, for instance, Crane Brothers, a contemporary menswear retailer. To save time and operating expenses, Murray Crane decided to automate the task of transferring sales data to his accounting software. Rather than manually plugging the numbers into the program, he integrated his point-of-sale system (Vend) with his accounting software (Xero). He got the two tools talking to each other so that information is automatically transferred from one program to the next.

The result? Murray was able to free up time so he and his staff could devote more energy to helping customers. He also estimates that the automated system in his store saves him forty to eighty hours a week — or one to two full-time employees.

Data entry isn’t the only thing you can automate. These days, there’s (usually) an app for most of the tedious administrative tasks in your store.

If you regularly make appointments with customers, for example, consider using an app such as Timely, which streamlines bookings and sales, and even sends automatic appointment reminders to your customers. Do you spend a lot of time managing employee shifts? Check out Deputy, which lets you and your staff coordinate schedules from your mobile devices and sends shift changes and notifications for you.

4. Increase your average order value

Increasing the basket size or average order value (AOV) from shoppers already in your store is a great way to improve your profits. You’ve already invested in getting them to your location; now go and find ways to maximize their spend. 

Start with upselling and cross-selling. As Matthew de Noronha, Head of SEO at Eastside Co., puts it, “someone who makes a purchase from you has already been qualified. They have engaged with your brand and, while it may sound obvious, they are significantly more receptive to offers and product advertising. For that reason, it makes complete sense to encourage them to spend more.”

Matthew says that you can start by finding products likely to be purchased together. Then, after a user has committed to purchasing a product, encourage increased spending by recommending relevant items.

Check out what apparel retailer Francesca is doing. Most of the brand’s product pages have a “Complete Your Look” section containing products that complement the item being viewed. This encourages shoppers to add items to their cart, increasing their AOV.

Strategic product placement in-store can also increase AOV. Adam Watson, director of Decorelo, recommends putting “your most profitable products in the shop window and in the best area customers naturally go to in the store so as many eyeballs see them as possible.” Doing so will help you sell your most profitable items, contributing more to your bottom line. 

Another tactic is to “put your best sellers and upsells near the counter for impulse buys to increase average order value,” says Adam.

5. Implement savvier purchasing practices

Whether you’re at a trade show looking at new products or at the negotiating table with your suppliers, make sure you’re always finding ways to lower costs. 

Think about the final cost

One of the best ways to do this, according to business coach Lindsay Anvik, is to “approach products by factoring in the final cost (i.e., wholesale cost, taxes, shipping, etc.). Once you have that final figure, ask yourself, ‘Would I pay X for this?’. If you wouldn’t, you need to find a way to lower the cost or move on from the product.”

Ask for vendor discounts or offers

Lindsay also recommends asking for discounts (e.g., free shipping) or other offers (e.g., throwing in a couple of extra products for free). This works particularly well when you’re buying in bulk. 

Lindsay, for example, once helped her client “negotiate $2 off of every garment they ordered. The client was a top customer, paid on time and was easy to work with. The vendor was happy to give this discount because it didn’t hurt his bottom line too much. And because my client was a good customer, he was willing to negotiate to keep her happy.”

Increase order quantities

Let’s say you need to up your order quantities for a particular item to lower its price. In this case, you could look at your inventory data and determine if you can afford to order certain items in bulk. If not, would it be possible for you to consolidate orders for other items (or with other purchasers) to increase your buying power?

This is something that many large retailers have been doing for quite some time now. A few years ago, for example, Walmart sought out joint purchasers for raw materials, so they can consolidate purchases and get more buying clout.

Explore your options and run them by your suppliers to see if you can negotiate better deals. If they don’t budge, then check out other vendors to find out if they can offer you more favorable terms. (And make sure your existing suppliers are aware of this — they could end up giving you better rates.)

Small-Business Grants: Where to Find Free Money

Federal and state agencies, as well as private companies, offer small-business grants. Here's a list of resources.

Small-business grants provide free money for startups and existing businesses, including those impacted by the coronavirus pandemic.

It takes time and effort to research and apply for funding, but the payoff can be worth it if you secure a grant for your small business. To help you get started, here’s a list of federal, state and private small-business grants and resources.

Federal small-business grants

Government agencies are among the biggest distributors of business grants, supporting a range of enterprises from environmental conservation to child care services. Applying may seem intimidating, but federal grants are great opportunities for small-business owners looking to grow.

Grants.gov: Grants.gov is a comprehensive database of grants administered by various government agencies, such as the Education Department and the Department of Veterans Affairs.

Small Business Innovation Research and Small Business Technology Transfer programs: The SBIR and the STTR grant programs focus on research and development for technology innovation and scientific research. The programs help connect small businesses with federal grants and contracts from 11 government agencies.

To qualify, you must operate a for-profit business, have no more than 500 employees and meet other eligibility requirements.

USDA Rural Business Development Grants: The U.S. Department of Agriculture administers the Rural Business Development Grant program, which provides financing to strengthen and grow small businesses in rural communities.

Businesses must have fewer than 50 new employees, less than $1 million in gross revenue and be located in an eligible rural area to qualify. Applications are accepted through the USDA Rural Development’s local or state offices.

State and regional small-business grants

Economic Development Administration: This U.S. Department of Commerce agency provides grants, resources and technical assistance to communities to support economic growth and encourage entrepreneurship and innovation.

Each state’s agency helps businesses find financing (including state or regional grants), secure locations and recruit employees. You can search the economic development directory for regional offices and local resources.

Small Business Development Centers: Your local SBDC provides support for small businesses and aspiring entrepreneurs. They’re often associated with local universities or a state’s economic development agency, and many can help connect you with small-business grants, as well as other business financing opportunities — plus, counseling, training and technical assistance.

Minority Business Development Agency Centers: The MBDA runs a national network of business centers dedicated to growing and promoting minority-owned small businesses. These centers help business owners access capital, secure contracts and compete in emerging markets.

Your local MBDA center can help you apply for debt-based financing as well as federal, state and local business grants. The agency usually holds an annual small-business grant competition and provides updates on this contest on its website.

Corporate small-business grants

Many corporations and large companies have a philanthropic component that includes small-business grants. While some provide grants to nonprofits servicing specific industries only, some also give to for-profit companies.

FedEx Small Business Grant Contest: The company’s annual grant competition awards over $250,000 to 10 small businesses, including a $50,000 grant and $4,000 in FedEx print and business services to its three grand prize winners. The 2022 contest is closed and voting begins March 22. Winners will be announced May 4. The contest is for U.S.-based for-profit small businesses that have been operating at least six months, with no more than 99 employees.

National Association for the Self-Employed: NASE members can apply for monthly small-business grants worth up to $4,000, as well as an annual $3,000 college scholarship for members’ dependents. Grants are awarded year-round, with completed applications reviewed quarterly in January, April, July and October.

Fast Break for Small Business: LegalZoom, the NBA, WNBA and NBA G League have partnered with Accion Opportunity Fund to offer $10,000 grants and up to $500 in LegalZoom services for small-business owners. This program focuses on helping businesses in underserved and underrepresented communities. Applications are open twice a year.

Patagonia Corporate Grants Program: Nonprofits striving to preserve and protect the environment can apply for a small-business grant through the Patagonia Corporate Grants Program. The retailer looks for innovative businesses with proposed projects that are quantifiable and have specific goals, objectives and action plans. These nonprofit grants typically fall between $5,000 and $20,000.

Visa Everywhere Initiative: The Visa Everywhere Initiative is a grant competition that offers funding to tech-forward startups across five different regions around the globe. Applicants must show how they’ve developed a product or service that creatively involves Visa’s products.

Visa will select the top five finalists in each region — and these businesses will move forward to a global finals event. The overall winner of the competition is awarded a $100,000 small-business grant. Additional grants are awarded to second- and third-place finalists, audience favorites, as well as regional and local winners.

COVID-19 small-business grants

Although many federal, state and private grant programs have stopped accepting applications, there are still a handful of options available for small businesses that need relief as a result of the COVID-19 pandemic. Here’s what you need to know:

SBA small-business grants: COVID-19 relief grant programs administered by the U.S. Small Business Administration — including the Shuttered Venue Operators Grant and the Restaurant Revitalization Fund — are closed and no longer accepting new applications. Similarly, the period to apply for the $10,000 EIDL advance, or grant, has also expired.

State and local coronavirus small-business grants: Some state and local governments are still running grant programs that are specific to COVID-19 relief. For example, small businesses in New York can access free financing up to $50,000 through the New York State COVID-19 Pandemic Small Business Recovery Grant Program.

In San Diego County, California, microbusinesses can apply for grants of $2,500 through the County of San Diego Microbusiness Grant Program. You can visit your secretary of state, department of economic development or other official government websites in your area to see what options may be available for your business.

Corporate COVID-19 small-business grants: Although some private companies have closed coronavirus relief grant programs, you may be able to find a few options that are still accepting applications.

The nonprofit organization Main Street America, for instance, continues to offer its Inclusive Backing Grant Program in collaboration with American Express. This program is currently awarding COVID-19 relief grants to brick-and-mortar businesses owned by women, nonbinary people and veterans of the U.S. Armed Forces.

Specialty small-business grants

To help spread entrepreneurial success across demographics, many organizations focus funding efforts on specific communities.

Alternatives to small-business grants

Finding and applying for the right grants for your small business can be difficult, as well as time-consuming. If you don't qualify for certain grants, there are other ways to fund your business. Here are some avenues to explore:

• Best small-business loans: Compare loan options — including bank loans, SBA loans, business lines of credit, term loans and equipment financing — plus, learn how to choose the right financing for your needs.
• Small-business credit cards: Explore dozens of cards and find the best choice for funding your everyday business purchases — and earn rewards in the process.
• Crowdfunding for business: Raise money for your small business by tapping into the power of the internet and promoting your product or service through a crowdfunding campaign.