Today, many people lose money from investments because they undertake too many risks and do not know how to minimize them. In this world, there are no risky investments but only risky investors. Thus, to avoid such gaffes, investors ought to upgrade their financial literacy and one important aspect they must improve on would know how to reduce risk. Now, read on to learn the art of reducing risk!
To reduce risk, according to Ebele Kemery one important rule to abide by would be to invest only in things you can make productive. This is because by creating value, you will definitely get rewards with very low amounts of risk involved. In addition, other experienced investors will only invest in you when they know they create value for others, mitigate risks to near zero and can manage growth and disposition of investments. Thus, to make your investments profitable and yourself attractive to investors, you have to remember this rule by heart.
In addition, to minimize risk, you must know what you own very well. Knowledge is power, having the ability help you mitigate risks and even repair flawed business plans to improve earnings. The more you learn, the less risk you are exposed to and the more money you make.
For example, during the financial crisis, most astute investors do not invest in collateralized debt obligations like the masses as they have perfect knowledge about its flaws. Now, given a choice, do you want to be on the winning or losing side? As a side note, the winning side always knows more.
Furthermore, you should also research thoroughly before buying investments. Here, always remember that you make money only when you buy, not when you sell. To make winning purchases, your investment has to be a business (which has predictable profits) instead of a stock subject to market changes.
To reduce risk for business investments, Ebele Kemery suggests to always find out evidence of demand in market, how fast revenue is generated, how it earns money, how to collateralize your investments and the partners needed to add needed knowledge and experience. As a side note, for real estate like land development, use trust deeds properly to collateralize your investments and place liens on properties.
After doing this, be the long term owner of your investment since you know that it will appreciate in value, not hold out because you fear losing. This is in line with Warren Buffett's investment philosophy where the best time to hold an investment is forever because you know very well that it will earn.
Ms. Ebele Kemery is a member of the Global Fixed Income, Currency & Commodities (GFICC) Group. Based in New York, Ebele is the head of Energy Investing within the Commodities team. Prior to this role, she provided institutional client relationship management and tailored risk management solutions in the Investment Bank’s Global Commodities Group.
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