The investing factors, time and knowledge, are central to investing success. The needed knowledge and skills can be learned and used by anyone taking the time to manage their investment choices. The process of learning to invest well takes time as does the doing and managing needed to develop your wealth building process and produce the best results.
What are the most important investing factors?
Money Choices That Grow Wealth course 250, lesson 3, answers the question, what are the most important investing factors? At the end of the lesson, links to related content help you learn more.
What you learn:
Of the many factors to investing success the two that impact every active investment are time and knowledge. The lesson details how those factors impact the various approaches available to investors.You can learn the direction needed for a beginner to begin their progress into becoming a superior investor.
Manage your time and knowledge
Skills including investing factors, time and knowledge can be learned and applied step by step. When considering any basic stock market strategy, we must consider the key factors of time and knowledge.
To use any strategy well we must take the time to learn and acquire the needed knowledge to give ourselves the best opportunity to produce the best results. Think of investing and learning to invest as continually changing processes.
To invest well and consistently, we must start and continually learn. As noted in other White Top Investor lessons, change is the one stock market constant. Market and economic changes and developments will continue forever so we must manage our investing by understanding constant change is normal.
3 Distinct wealth building approaches
3 distinct wealth building approaches begins on a foundation of income investing. That income building foundation can be used to support growth investments and topped off with timely speculations to cap your financial freedom. That layered method first builds an income base followed by the growth layer that gets capped by speculations when opportune.
You can learn the straightforward methods of building such a portfolio. And you can do it with managed risk. White Top Investor lessons walk you through the process one small easy step at a time. Discussing, considering and managing risk are essential parts of successful investing. Depending on the strategy and circumstances, risk can be significant. However, risk can also be prudently managed.
This lesson builds on lesson 2 of this course that covered investing, trading and speculating as the basic stock market strategies. Here we consider shades of those investing strategies as well as the time and knowledge needed to make them work for you. You can begin investing with an easy conservative income approach, move a more assertive growth approach or use the very patient approach of value investors. I recommend you begin by building a portfolio of income paying investments in quality companies.
Using time and knowledge to invest in income, growth or speculate
Of the numerous possible strategies the most popular ones include:
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The best and easiest place to start – Income Investing – wealth foundation!
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A solid alternative – Value Investing – bargain hunters seeking growth!
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More aggressive and demanding – Growth Investing – growth drivers!
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Speculative Investing – flash and splash!
Risk and return trade off
When considering the investing factors, time and knowledge there is always a trade off between risk and return. Higher performance may be available at higher risk. The best investors know how to manage the trade off to keep risk low or manageable while pushing returns higher. They never made the error of thinking more risk equals more reward. Most often more risk simply means more downside.
Seeking more or higher returns means taking more time to manage investments. Effectively doing that take more knowledge. Before seeking aggressive investment returns, be sure to have your homework and knowledge in hand. Also me mindful that aggressive investing takes much more account management time.
Don’t spill money – walk don’t run!
When you begin investing, investing factors, time and knowledge as best mastered by begining with a conservative income approach. Investing well is a lifetime journey. Don’t be in a rush to catch this year’s winner or fashionable play. There will always be another. Learn first, then do.
Think of yourself on a lifelong journey to becoming a superior investor. You have lots of time to try any and every imaginable strategy. Rushing into aggressive investing is risky and most often a very expensive mistake. Especially for someone beginning to invest with little experience.
To build a portfolio, begin with the basics. Restrict your first holdings to large, established profit producing companies. This give you the best basic investing approach. It assures you begin by building a profit producing portfolio. Making money from the start gives you the best opportunity to enjoy learning to invest. That makes it fun and gives you a money making way to build knowledge and experience at low risk.
1. The best start – income investing
First, buy stocks that pay you! That way you get paid to learn even as you earn how to earn more! Income investing is the easy and most straightforward way to learn about investing and markets. It seeks investments to hold for the long term. Those are the stocks to buy and ride for a very long time. To most income investors, a long time means multiple years. The very best part of owning such stocks, you are continually paid and profit while you take the ride!
Investing to produce income is also the least risky and most secure strategy to use while you learn. An income producing portfolio typically consists of two types of investments. Interest paying bonds and dividend paying stocks are most often combined for this approach.
The bond market
Investing in bonds requires participating in the so called fixed income market. In theory they reliably produce a set and secure payment. Bonds have the advantage of little drama when held to maturity. They provide a set return and at maturity, return your capital. However small investors can be challenged to buy and sell them at favorable prices. The bond market has multiple gatekeepers and toll takers with their hands out.
For those reasons, White Top Investor does not recommend buying bonds for the typical small investor. Income seeking investors can actually do better buying equities. Equities offer upside price potential as well as superior income streams compared to bonds. Many large, high quality and well established companies reliably make secure dividend payments.
Equities can deliver
The income equity approach demands the least amount of account monitoring. You must pay some attention but day to day study is not needed. The solid returns reflect this security. These investments can be good and when played well can outperform the market. However, income investing does not offer the highest returns. Rather, dividend paying stocks are the stable base of an investor portfolio.
Investing success lasts a lifetime
Don’t be in a rush to establish all 3 distinct approaches to investing. It takes time to build. And it is not essential to use any more than an income investing strategy. Income investors get paid to ride for a long time. Years, decades or forever are good investing time frames for income investors.
Dividing investments from multiple dividend paying, profitable and growing companies works best. Eliminating all other stocks from your consideration makes picking your investments easier. And makes sure your portfolio always stays profitable.
Imagine picking investments like picking the best bus route to ride. Pick the profitable, growing dividend payers and you know enough to catch the bus that pays you to ride! On the right bus you ride happy making money while you get where you want to go! You can leave the risks for traders and speculators.
Traders and speculators pay to ride rather than getting paid to ride. They do it hoping they are catching a faster bus that will get them more money faster. They work hard to beat you to the next stop or two along the bus route. And they may do that. But that approach never keeps them ahead on the investing highway over the long term. A lifetime of getting paid to ride has always won. It likely always will.
Look for the investing sweet spot!
Most large, investing factors, time and knowledge growing and dividend paying companies are solid investments. They provide a dependable return and income stream. There are exceptions but the share price of many such companies trade in a narrow price channel. But they continue to pay you! They are solid, boring money makers! Such investments can serve as foundations for an excellent income portfolio.
When invested that type of company, you may see limited share price growth. Much of your return comes from the dividends, not so much from the rise in share prices. As always, there are exceptions to this generalization. The share price of these companies can and do rise with the general economy. That is often at a pace well behind the prices of the market leading shares.
There are many happy exceptions. Companies that can and do pay dividends as well as grow faster than the market and economy. These most powerful companies grow in value as they both pay and raise their dividends. That is the sweet spot of dividend investing!
Quality research efforts uncover these get paid to ride opportunities. When getting aboard a dividend paying ride, stay for three or more years. Income investing means holding long-term positions. They are only sold if or when the fundamentals changes. That means we buy to hold these positions for years.
Build income then look for growth
When the investing factors, time and knowledge allow, investors can add a growth layer on their income paying investment base. Although growth stocks offer an attractive upside is comes with challenges. The big challenge is picking the best growth stocks. In contrast, picking the best dividend paying companies is much easier. For that reason begin by building your dividend paying income portfolio.
Think of dividend payers as your investing foundation. You want a broad, deep and wide rock solid foundation. Then set about using that secure foundation as your base to seek growth.
Building a portfolio of growth companies sets you up to ride faster and greater gains. and is the reason to consider investing in and building such a portfolio.
2. Solid alternative – value investing
Value investing is the ultimate buy and hold strategy. This is the most conservative growth investing strategy and made popular by investing giants Warren Buffett. This conservative long term method of investing does have a record of beating the market and the best widely known conservative approach to the market.
Benjamin Graham is the respected and very successful father of this specific stock picking and growth producing strategy. Warren Buffett, Graham’s star pupil, is the current poster boy for value investing. Buffett adds his excellent and on going results to the outstanding record of value investing. If you like buying on sale this may be the approach for you! Essentially, value investors seek intrinsic value greater than the price of the stock. They want to buy cheap.
Used properly and successfully, value investing produces extraordinary returns over decades of use. You need the right temperament and a willingness to work at investing because it takes effort.
Value investing challenges
You most definitely can learn value investing. However, this is not a simple strategy to do well. I do not recommend it for beginners but certainly do for those willing to work and seriously study the market, companies and the economy. Patient number crunchers love this approach to investing. Those with the right temperament can do very well with it.
However, it is very challenging to carry off well. Anyone interested should begin by first reading the value investing classic: The Intelligent Investor, by Benjamin Graham. Amazon offers this value investing bible here.
In large part the value growth investment comes from an investing past that imperfectly priced stocks. Large profitable growth companies are very hard to find in the information age. And there are lots of well funded, knowledgeable researchers looking. White Top Investor has tremendous respect for successful value investors but I have never see a new investor do anything but get frustrated trying to execute this tough strategy well.
The best investing ride driver
On any bus ride, the driver is the most critical person. We want a good driver on any investing bus ride. That is the management. The management job is to get the best return on capital. investing factors, time and knowledge
The best return on capital can get done two ways. First, by paying us to ride. A nice dividend pays for our investment of capital. Second by paying us with a higher company value.
The company should not pay a dividend when management can grow the company value faster. That means management increases the business value more than a dividend payment. Using capital to grow faster that a dividend payment is good. The best growth companies do that. Those are the ones to pick and ride!
Identifying and investing in growth companies can produce dramatic portfolio growth. There are many solid and growing companies that do not pay you to ride. Rather their management uses the capital to grow the business value. That increase in value gets reflected in higher share prices. That can give us a sweet and very profitable ride.
3. More demanding growth investing
More challenging yet when considering the investing factors, time and knowledge, growth investing a strategy built on trading. Growth investing is the first strategy discussed here that involves trading. That contrasts with the proceeding strategies including value investing.
Growth investing seeks to pick stocks that will significantly increase in value in the short to medium term. Then sells them to take profits. Value investing also seeks growth but investors that use that strategy are typically looking to hold on to the investment for a very long time.
Most growth investors have the intention to buy and ride the stock to a higher price and then sell. Less attention is paid to selecting stocks offering dividend or income payments. The typical growth investor focuses on riding the share price higher and takes any dividends as nice and welcome bonus payments.
Growth investing seeks higher returns in a shorter time than any income investing approaches. It can work very well in positive market environments. That means it produces excellent and superior results in rising bull markets.
It requires buying and selling multiple stocks in periods of good economic growth. This basic strategy does not work at all in a negative, falling or so called bear market.
Build growth after mastering income investing
Only build the growth part of your portfolio after building your investment income foundation. The investing factors, time and knowledge are significantly higher when building growth portfolios. Go there once you have income investing in hand.
Then build your growth portfolio and develop it until you can regularly show good performance from the growth investments. Only then should you look any further. Once both your income base and growth performance get established, consider intelligent speculation.
Intelligent speculation is more challenging than growth investing. And growth investing is more challenging than income investing. Growth and speculation are both less secure. Both have higher potential risks than income investing. There is only one reason to consider either. Done well, they can make you considerable amounts of money!
Speculation in particular opens a vast range of possibilities. It is by far the most challenging investment sector. The upside can be spectacular. But the downside can be total loss! The greatest market risks lurk here. Anyone can get lucky and we will take lucky every time. But intelligent superior investors do the homework and don’t count on luck.
Growth investors have market knowledge
Essential investing factors, time and knowledge, mean routinely successful growth investors have good understandings of markets and business. Growth investing also requires the ability to recognize basic broad market changes. Developing that skill can be a significant challenge, especially for a beginner. It comes from experience. Obviously, growth investing also demands considerably more and regular attention than income investing strategies.
An investor using a growth approach needs both knowledge and comfort with the markets. That means the growth strategy approach should not be used by a beginner without close help, coaching or oversight. Growth investing can produce outstanding results when played well. It can also produce significant losses when poorly or inappropriately used. Bad trading can be a very expensive unpleasant experience!
Playing the growth strategy well can definitely be learned by anyone willing to put in the effort. However, again I say, this is not a strategy for beginners. At a minimum it requires a moderate level of experience and knowledge to successfully and consistently use.
Growth & speculation can pay big!
But there are opportunities to add to a successful investing strategies by layering on growth and speculations when appropriate. But again, considering the investing factors, time and knowledge, we must take the time to learn before doing. Taking the best from each basic approach can give you with best of several ways to build investing success. The 3 distinct approaches to investing give you 3 powerful wealth building allies. Just be sure to learn how to use them before you do use them.
Growth express climbs faster
The income portfolio bus ride pays but generally climbs low hills, not high mountains. There is a faster way to reach a higher valued portfolio elevation. We can get further up the investing mountain, faster, by taking the much faster growth express bus that climbs higher investing mountains.
There are many large well-managed profit-making growing companies that do not pay dividends. These are well managed growth companies dedicated to growing their business. Such successful companies enjoy very nice share price gains over time. But they do not qualify for our investing portfolio because they do not pay us to ride.
Still, growth stocks can offer a very nice upside. The great ones can have dramatic stock price increases. Those increases can balloon the value of our portfolio. That make them attractive.
4. Ride speculative rockets for explosive gains
When considering our investing factors, time and knowledge, the most challenging strategies are aggressive trading and the wild west of speculating! These more aggressive strategies carry considerably more risk as well as greater potential rewards. They are both advanced strategies for more experienced investors.
Only after you have income and growth investing knowledge and a record of successful use, should you look at speculation. investing factors, time and knowledge To speculate well needs much more knowledge and time. Along with the time needed, risk increases can be dramatic. More than with other strategies, total losses are possible.
Speculation is not the place for a new investor. The right speculative situation can produce explosive portfolio gains. Explosive stocks can also blow up without warning. Such an explosion can cause serious damage or even sink a portfolio.
Invest income, trade growth, speculate flash
Now for the 3rd of the 3 distinct approaches to investing. investing factors, time and knowledge After building income foundation and growth rides investors can look to speculation. Speculation opens a vast range of possibilities. It is by far the most challenging investment sector.
The upside can be spectacular. But the downside can be total loss! The greatest market risks lurk here. Anyone can get lucky and we will take lucky every time. But intelligent superior investors do the homework and don’t count on luck.
No pay from growth or speculations
investing factors, time and knowledge Both growth and speculations do not pay you to ride. As you are not getting paid to ride, your total return depends upon that share price increasing. To do either well takes more knowledge and demands more time. The rides can be exciting but short. At least short compared to the many years or decades we ride income investments. Some do run for years but not most.
Growth stock gains covers a huge range. As the investor gets more aggressive the risks compound. Learn risk management from an experienced knowledgeable investor. Learn for someone that does it well as not all do. This is a big topic. Future White Top Investor lessons will discuss the many details.
What are the most important investing factors? Answered!
Of the many factors to investing success the investing factors, time and knowledge two that impact every active investment are time and knowledge. The lesson details how those factors impact the various approaches available to investors.You can learn the direction needed for a beginner to progress into a superior investor.
Lesson takeaways,
Investing factors time & knowledge
The investing factors, time and knowledge, are central to investing success. The needed knowledge and skills can be learned and used by anyone taking the time to manage their investment choices. The process of learning to invest well takes time as does the doing and managing needed to develop your wealth building process to produce the best results.
Experienced short sellers combine timing, judgement and facts into effective, profitable broad stock market vision and awareness.
- Corrections with 10% price drops happen regularly.
- Dips and corrections generate much meaningless market noise.
- Corrections are quick 2 to 14 week events about once a year.
- Cause, effect and timing of corrections has not been discovered.
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Investing factors time & knowledge
FED Chair direction expectations
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Weeding your investment portfolio
It’s Complicated! Speculating!
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Money Choices Grow Wealth,
lesson links:
Introduction to Money Choices That Grow Wealth Lesson 1
3 Basic stock market strategies Lesson 2
Investing factors time and knowledge Lesson 3
Stock market trading strategies Lesson 4
Speculation risks, returns and failures! Lesson 5
Next lesson 4:
Stock market trading strategies
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