What does it mean to invest in yourself?

Hi! It’s AM. 😄

Welcome to this week’s early publication. I am thrilled to be sharing to you some informative content about basics of investment.

In today’s email, we will cover the first 4 chapters of Monica H. Ignacio’s book entitled Investment Management and Portfolio Development.

Which consists of the following topics:

• The Investment Environment

• Enterprise, Risk, and Return

• Investment Planning, and

• Corporate and Government Securities

Let’s now begin, shall we?

Chapter 1 The Investment Environment

Investment is, basically, foregoing a present valuable resource (eg. money) in hopes to receive a potential valuable return in the future. It is a process of acquiring and purchasing an asset with the goals to generate an income.

The Enterprising Spirit is what pushes us to undertake any profitable venture. It is the belief that our progress as an individual is dependent on the investments we make.

For a wise person with entrepreneurial mindset, it is not all about what you invest, but it is also actually about what you do in order to achieve all of the objectives you set out to yourself.

Productivity corresponds to efficiency. It measures how much valuable work you have done over a specific period of time. It is just one factor that add to the potentiality of our own success. When we push ourselves to do the hard, dull, and dreadful things, we actually are pushing ourselves to the best of our ability to achieve some sort of growth.

Capital is a wealth utilized with objective of gaining an income or growth.

Of course, when we invest, we forego a present resource in hopes for a future return. We give up something to receive something more.

The coins in the picture can also symbolize us people. The more we invest our valuable resources such as our energy, knowledge, capabilities and most importantly, our effort, we are putting ourselves in a place where we can actually gain growth as an individual. The effort we invest in things will grow into something much more beneficial than other things can ever provide.

The things we do now, we undertake, determines and adds to where we are going to be in the future.

Capital investment is the acquisition of physical assets for use in furthering the investor’s long-term investment goals and objectives.

The quantity of capital in an investment is a determinant of its productivity.

Individual investors contribute to their own growth.

Investment in general contributes to the overall economic growth of a country.

Chapter 2 Enterprise, Risk, and Returns

Every investment is associated with some types of risk.

Risk-Return Analysis is an analysis that investors conduct in order to weigh whether a particular investment is beneficial to them more than it is costly, or rather will it cost them more than give them a gain or profit.

Different Investors have different attitudes when it comes to their investments. These are:

• risk-desire

  Is when investors do not mind the possibility of incurring losses associated from an investment since the usefulness of return is greater than the sacrifice.

• risk-indifference

  Is when investors do not mind the risk associated in an investment since the usefulness of return equal to the sacrifice.

• risk-aversion

  This is when investors try to avoid risks because the return’s usefulness is less than the sacrifice.

As an investor, it is imperative that we understand risk management and what it will provide us. Learning how to lessen financial losses will give us high possibility of achieving investment goals we have laid out for ourselves.

Chapter 3 Investment Planning

We’re now at the most crucial part of investment management.

An investor who has a purpose and defines explicitly his investment objectives are most likely to succeed. Because of his objectives clearly laid out, an investor will have focus and will be motivated in tracking his progress.

Not only we should be taking into considerations the risk of the investments, but also, we need to study investment vehicles that are best for us. These are some vehicles of investments.

First of all, before we decide to invest our limited and valuable resource, we must determine how much we can afford to lose in an investment. As an investor, it is important to put into account our salary, allowance, or saving since it must be at a level which shall provide us:

1. Subsistence portion

   This is the portion of income enough for us to live at an acceptable standard of living.

2. Better portion

   This is the portion to grow on. This is the portion we can use necessary for building growth.

To reach our investment goals, we have to:

1. Improve our current income, the inflow of money.

2. Control outgoing expenses.

3. Save as much as we can.

4. Invest our savings, and lastly

5. Protect our assets.

Personal income is derived from either:

• sweat income an income you gain from expenditure of your own time, talent and effort.

• no-sweat income is the income we gain from yield on investments (aka passive income).

As an investor, we should know which earning and spending pattern we must follow from among the following to maximize investing opportunities.

1. “Earn now, spend now.”

   We should know better than to spend the hard-earned income in a foolish way. It is in the mindset of wise investors to always think about growing the valuable resource first before deciding to spend it for matters that are not beneficial.

2. “Spend now, earn later.”

   This is the mindset none of us should be incorporating. Why would we spend when we do not have the resource that we can spend in the first place?

3. “Earn now, spend later.”

   Wise investors act like they’re broke when in a literal sense, they actually aren’t. It is because they have this drive that whatever they do, it must give them benefit. Just because you have the money to spend, doesn’t mean you should go and spend it. Live below your means.

Our consumption estate and our earning estate is the ingredient for the totality of what we are worth, or rather what our investment is worth.

Compounding is an investment concept that allows investors to earn even bigger returns as a result of the periodic addition of earnings to the principal invested.

Basically, it involves earning returns on both your original investment and on returns you received previously.

Let’s define some important terms in investment.

• Seller’s market - is where buying pressure is so high that the seller’s price ideas prevail.

• Buyer’s market - is where selling pressure is high that the buyer’s price ideas prevail.

• Compelled Buyer - one who must buy within a limited time. A buyer forced to pay whatever price is demanded by sellers.

• Distressed Seller - one who must raise funds within a limited time. A seller forced to sell at whatever price obtainable in the market.

• Short-seller - he who had sold what he did not have yet due to expectations of downtrend.

• Price Correction - it results when prices are too high or too low.

• Securities Market - is a free market regulated by Securities and Exchange Commission for orderly trading and protection of investing public.

• Secondary Securities Market - is a continuous auction market where buyer’s bidding price and seller’s price offers are pushed every trading day.

Chapter IV Corporate and Government Securities

As an individual, we can invest our own money and savings.

A business enterprise or government agencies can fund their operations either with its own funds, borrowed funds, or both.

Securities is basically the stocks and bonds. When we buy securities in a market, we become part-owner of that corporate enterprise, and when we buy bonds, we become creditor of the issuer of the bond.

The creditors are prioritized as they have preference claims upon the asset and should be paid first by a company, before owners receive any return on their investment.

BONDS

A bond certifies a company’s indebtedness to a bondholder.

The bond issue is covered by an indenture or deed of trust which is the legal agreement between the issuer of the bond and the holders.

A trustee (usually a bank or a trust company) is appointed by the issuer with duties and powers defined in the deed of trust. They protect the rights of bondholders and also supervises the compliance of issuers to the restrictions, pledges, and promises of the indenture.

Interest on bonds is usually paid semi-annually or annually.

I would have to say not as much as we have heard of stock markets.

That is because the bond market has been dominated by government issues, purchased mainly by financial institutions such as banks, insurance companies, and pension plans which are mostly interested in low risk, fixed-income securities.

The primary bond market is fairly active, but the secondary bond market still has to be developed.

STOCKS

Stocks is a type of security that gives stockholders a share ownership in a company. Corporations issue stocks to gain additional funds to grow their company.

A stock certificate is a physical piece of paper which serves as a proof of investor’s ownership of a stock. It includes information such as the number of shares owned, the date of purchase, the corporate seal, and the affixed signatures of both buyer and issuer.

Common stock represents basic ownership of the corporation, while preferred stocks have higher claims on assets and earnings of a company.

CASH DIVIDENDS

This is a part of retained earnings of a corporation distributed to stockholders. This serves as the income or gain of those investors.

STOCK SPLITS

It is a decision by a company’s board to increase the number of shares by issuing new shares to existing shareholders. This is done when a company’s stock price has gotten so high that it might interfere with new investors’ decision to buy a share.

STOCK OPTIONS

Stock options have become a popular investment instrument particularly abroad. An option is a choice given to the holder who can choose to exercise his option anytime within the contract period.

The right to make such a choice is acquired by the holder by paying a premium to the option writer (which is the seller of the option).

A put option is a contract that allows holder to sell a specified number of shares at a predetermined price at any time within the contract period.

A call option allows the holder to buy the subject matter of the option. He basically ‘‘calls’’ for the shares.

If we have a clearly defined investment objective with a definite time frame, it is most likely that we achieve our financial goals.

Investing bring fear and worry, there’s no doubt about that, especially when we’re new to it. But just like Warren Buffet, one of the best-known investors in the world have stated, “The most important quality for an investor is temperament, not intellect.” Keeping calm amidst having a seemingly bad portfolio is a skill due to the fact that it allows us to bounce back to the result of our previous decision and making the next big one with much better and more informed decisions to move forward. By letting our emotions cloud our judgment, rational thinking will be overshadowed, hence can lead to a loss. We need to make sure that we are making a better and informed decisions when we buy, and when we sell. Because buying a stock is as important as selling it. One of Buffett’s advice is to Buy and Hold. We are more likely to make more money by investing in assets with greater risk, the higher the risk, the higher the potential return.

Also, as what I already ha stated earlier, choosing what type of investment we undertake is also a big aspect to consider. It is crucial to know what are the good-performing investment vehicle to choose since choosing the perfect investment vehicle is necessary to know whether it will help lead us to achieve our financial goals and objectives based on our risk tolerance, capital, etc.

PS. To my classmates taking up Investment Management and Portfolio Development, good luck to our exams!! ✊🏻✨