See, what had happened was…while I was steady depleting my emergency fund for legitimate and illegitimate reasons, I helped someone out of a tight situation with some of those funds. They had some money in a brokerage account but didn’t want to go through the process of pulling it out as there were time constraints. The plan was for them to pay back the following month but we discovered that I was processing an account opening at the same brokerage house so I put in an order through their account which will be transferred to me when I complete the account opening (It’s taking forever because I hate forms and all the attendant supporting document palaver. TL;DR: lazy.).
I’ve taken time out to think about where I’m going with this. I came across an article talking about finding a purpose for your money (there will be a post about this at some point). My “why” ties in with the manifesto I outlined at the onset. I want the freedom to do the things I want to do them, to live my best life. To my mind, I can only achieve this if I don’t have to worry about money so my passive income game has to be tight.
People never tire of telling us how badly the stock market is doing and it truly is volatile but, I am at the stage in life where I can afford to take certain risks as I think I am risk neutral. I have decided to take a diversified approach, basically a mish-mash of three investing styles – income, growth and value investing.
Growth investing has to do with buying shares in companies that have capacity for capital appreciation i.e. they have the potential to increase their bottom line over time. The idea being that their stock prices will increase to reflect improvement in reported profit. You can read more here.
And then there’s value investing. The price of a share is typically thought to reflect all available information about the company in an efficient market. As real life does not always match up to theory, there will always be instances where shares are priced lower than their intrinsic value. You can get more information about this here.
I’ve just started Benjamin Graham’s The Intelligent Investor which is supposed to be the book to read on value investing. He was also Warren Buffett’s mentor who is the poster child for value investing. If you have read it or will get it after reading this, let me know what you think.
It would be foolhardy to go into any investment without doing appropriate research. The work involved in identifying companies that fit any of the categories above is a lot. A good stockbroker should be able to advice after having a chat about your objectives. They have the resources to do the analysis required and extensively too. There aren’t many tools around (particularly, none targeted at the Nigerian Market) that allow you to plug and play except you know what you are after and can wrangle with MS Excel. However, I will update this post and/or the downloads page with anything I come across or develop so you can look out for that.
If after reading all of the resources I’ve linked (well done you!), you think it’s too much wahala, you might consider talking to an organisation which offers mutual funds. A Mutual Fund does all the work for you by creating a diversified basket of assets that you can buy a portion or “unit” of. Understandably, you will pay for the pleasure which will take the form of a fee, typically 2% – 5%. A quick guide to how this works in Nigeria can be found here.
I’m interested to read about the sort of investments you have or have had. Do overshare in the comments. Don’t forget to take my saving and investing habits survey here.