Basics of Investing – Part VII
Fundamental Lessons:
1. There’s no such thing as a free lunch: You won’t get something by doing nothing.
2. The irony of money:
The less you have, the more you’ll spend and the less you’ll get.
3. A fool and his money are soon parted: Don’t be foolish – THINK BEFORE YOU LEAP!
4. Caveat Investire: Don’t leave your money to the EXPERTS! Take charge of your own investments!
5. Beware of the Black Swans: Impact of Highly Improbable Events.
6. Always Cash Out and Recoup Your Capital.
7. Consider the Fundamentals: Risk, Return and Liquidity.
Basic Lessons:
1. Follow the investment philosophy used by richest person in the world: Warren Buffett. His Investment Philosophy? Value Investing!
2. Ascertain companies qualitatively:
· Characteristics of Top Management;
· Substantive Competitive Advantage; and
· Corporate Social Responsibility
3. Ascertaining companies quantitatively by analyzing the financial statements and using Analytical Review techniques. Keep a look out for my Analytical Review 101 posts.
4. The Legal Aspects: Understand the legal repercussions of investment in shares. The Limited Liability concept and Separation of Ownership and Management.
5. The Financial Aspects: Understand the significance of Annual Reports and Quarterly Reports.
6. Audited Financial Statements: The Income Statement, Balance Sheet, Statement of Changes in Equity, Cash Flow Statements, Auditors’ Report and Notes to the Financial Statements and their significance.
7. Recapitulation: Summary of Investment Lessons learn so far.
Conclusion:
We have covered the fundamental and basic lessons of investment in shares. The next step will be evaluation of the companies' quantitatively using the Analytical Review techniques.
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