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Monday, November 17, 2008

Run Your Investment Like a Business

I have found that people who have made money consistently through their investments are able to do so because they treat it with same seriousness as they would in building a business or a second career.

If you treat investing as just a "by-the-way" activity that you spend time on now and then, you will never be able to succeed. So, how can you run your investing activity professionally like a home business?

Just as an entrepreneur has to decide on the mix of products that his business will sell, you have to decide on the type of investment strategies you will use to generate the profits that you aim for. You also have to decide how you are going to allocate your investment funds between them.

There are whole ranges of investing strategies to make money. Some of them are short-term and some of them are long-term. Some of them require daily monitoring while others require monthly monitoring.

The kind of strategies you should employ depends on your targeted rate of return as well as the amount of time you have to spend. For example, being a full time trader who is able to monitor the markets for 5-6 hours a day.

My fellow investor Conrad focuses 100% of his money into very short-term momentum trades that make him quick gains within a few days. Because of his smaller investment capital (which he first started with), he solely uses Call & Put Options that give him the highest possible return of 100%-200% on his money. His strength in Technical analysis gives him an advantage in picking the best momentum trades.

As a person who has full time businesses to run and relatively less time to trade on a daily basis, I allocate 80% of my money into medium-term value stocks as well as buying ETFs that track the overall market and its sectors. My strength in fundamental analysis and business strategy also gives me an advantage as a value investor. I would only focus the remaining 20% of my funds into short-term momentum trades to give my returns an added boost.

Whatever investment you decide to use, always remember that you need to diversify your money adequately into at least 8-10 different stocks or options at any one time. No matter how much research you do and no matter how good a company's stock can look, things can turn against you with a single piece of negative financial news. Be prepared to make losses on a few trades, it is only natural.

However, if you stick to the rules and cut your losses, the profits you make on your winning trades would be enough to build a small fortune.

Secrets Of Millionaire Investors by Adam Khoo

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