The objective of investing is to identify, create, nurture, and sustain wealth as well as those who assist in wealth creation. If we are not creating wealth, then we are only spending, and thereby depleting, it. When spending exceeds our earning, debt rises, and we inadvertently suffer due to our fiscal irresponsibility stemming from fiscal ignorance. No matter how much wealth we may have earned, it is bound to exhaust once we stop earning it. Therefore, we have but no option but to keep earning wealth – sustainably – throughout our life not only for the sake of prosperity but also personal independence. In this article, U. Mahesh Prabhu enumerates ten of the finest but little-known wisdom on investing & wealth creation.
1. Wealth and money are never the same.
Money represents wealth, never wealth itself. While we need wealth to create money, we cannot create Wealth through Money alone. Also, wealth is a much broader concept than money. Besides, the money we keep in our wallets or banks is often less secure, whereas the wealth of knowledge that helps us to earn that money in the first place is seldom subject to theft. What is more? The wealth of knowledge only grows when shared. Money, including real estate, inherited is often lost as effortlessly as achieved through inheritance for this very reason. And people incapable of understanding this quintessential difference through the application of their intellect are either incapable of earning and retaining wealth for the apparent reason. While there is no doubt that money is crucial in our lives, we can seldom earn, sustain, or retain it without knowledge. Any knowledge that fails us to earn wealth can seldom be knowledge in the first place.
2. Investing money to make more money is trade, not investment.
Investment is about wealth and not just money. When we invest money only to earn more money through dividends and profits, it constitutes a trade. The objective of trade is only to profit. The objective of the investment is to ensure value creation not only for the investor but everyone involved in the process. Investing has to create incentives for all involved to assist or at least not to resist wealth creation. While trade profits but a handful of people investment builds the more excellent value and for generations.
3. The investment received in terms of money is neither Profit nor Asset; it is a specific debt to be repaid – sooner than later.
One of the greatest travesties of the millennial generation is their inability to understand the nature of investment when received as financial capital. Most disastrously, consider (or treat?) them as a profit and often end up blowing that money much before making anything good of it. Any investment received is a debt, and debt is for repayment. Not repaying debts on time, besides jeopardizing relationships between investors and entrepreneurs/promoters, impairs the credibility of the businesses to raise more money for future business expansion/growth. It leads to an inevitable collapse of the business.
4. Value and valuation are never the same.
Value is an estimate of the price of the product(s) or service(s) in the present moment, especially that product(s)/service(s) you intend to trade. Value is through market factors of demand and supply. Valuation, on the contrary, is often a financially engineered value of a product or service in the future. Such valuations are equivalent to speculations by amateur gamblers.
5. Knowledge is never a certificate; even the best certificates without actionable skill are worthless.
Most people consider their degrees/diplomas/certificates as an asset; this is why most young people invest vehemently in their university education while incurring considerable debts in education loans. Most of these university certifications often fail their students in landing jobs that can help repay their debts faster. The inherent reason for a student’s inability to earn an adequate salary is the absence of skills that can help them be valuable to employers who could pay them a handsome remuneration. We are also observing people above 40 now becoming extremely redundant with their skills, losing jobs, and becoming homeless. This morbid situation is not to be blamed so much on the government but the sad state of the education system, making students believe that the certification alone will provide them with avenues for better employment and remuneration. Therefore, one must persistently work towards expanding one’s offerings through skillsets rather than mindlessly earning certifications which is often redundant.
6. If you do not prepare for loss, you cannot endure profits.
Loss and profits are natural. There are greater chances of loss than profits in most of our investing pursuits. Therefore, it will only make sense to prepare for the loss even while planning for profits. Worse, if you are only seeking profits without bracing for possible losses, then you are in a wish-full-thinking business, where heartbreaks are a norm. While investing, apart from money, there is yet another critical quintessential ingredient: time. If you are investing time wisely and are using your intellect to learn about the reason that causes loss in the first place, then there is a greater chance of your profits to arrive bearing fruits in the next attempt. Therefore, the hypothesis: If you do not prepare for loss, you cannot endure profits.
7. People trying to sell you something by suppressing your logic and reason while instigating your impulses are often tricksters
Impulsiveness is the nature of the human mind. A great many decisions of our lives are base on impulsiveness. The idea of peer pressure, social pressure, and the desire to imitate our friend’s success are some of the reasons why people take some of the most naïve decisions and do not even care to learn from it when they fail. While humans take pride in their ability to think, one can know how untrue this assumption is on closer scrutiny. Most decisions in our lives are the ones that are imposed upon us by our parents, family, siblings, friends, colleagues, spouse, children, and even strangers on the television ads/infomercials. When people are trying to impress you, they are often trying to lure you into the bait. And the oldest trick of the trade called baiting is to lure the prey with the thing it likes and ensure it comes closer to you before you trap or shoot it. Most investment tricksters of the day apply a similar measure. They fail to provide you with adequate time; words like “Now or never…” or “Once in a lifetime opportunity…” are often repeated in their marketing messages and slogans. Impairing your good judgment and making you act on your impulses is how such financial tricksters snatch away your hard-earned money. Behind all pyramid and Ponzi schemes are people selling ideas that suppress your logical intellect and push your impulsive best. If you can hold on to your impulses for such tricksters, there is no way they can get the better of you – let alone stealing your money.
8. Listen to everyone but heed only to your conscience.
Decisions are vital to the art of sound investing. A good decision is bound to have a positive impact on investing. Sound decisions are seldom possible without factoring in all the available facts. Factoring in all facts would mean listening to all and everything everyone has to say on the subject matter before taking a call on decision. In the polarized world, we like to listen to those who adhere to our ideological viewpoints and ignore those who do not. By locking our minds, we deprive them of inputs required for better decision-making. Therefore, the eighth wisdom “Listen to everyone but heed only to your conscience.” What is good for you must be decided only by you and not others. What is good for you is what you need to work for, and for that, you need to listen to all facets of a situation before taking a balanced decision based on rationale and reason instead of mindless impulses or emotions.
9. If you are in the habit of blaming, you are also in the business of losing.
Blaming others for your folly is not just easy but also stupid. Wealth creation is impossible in an environment that harnesses foolishness. Accountability is the key to wealth creation and its sustenance. And accountability is also the bedrock of a sound character. If you often blame others for your problems, you are most certainly in the business of losing. Therefore, take accountability. If you face loss – learn from it; if you achieve profit – be humble and handle the success responsibly. Neither profits nor losses are eternal. And taking total responsibility for your success as well as failures are better approaches for sustainable wealth creation.
10. Never take advice from kowtowers and ignorant.
Kowtowers and ignorant people are often the same. Their inability to learn and imbibe knowledge makes them believe that wealth is always a matter of luck. Therefore, instead of honing their intellect and skills with an intelligent investment of time and resources, they waste their energies on pleasing wealthy individuals in hopes of rewards. A sizable amount of people in this world are the ones with such mentality. With time their ability to woo people’s ego becomes so intense that they master the art of leeching on people with true capabilities. While supporting such individuals may not be harmful, taking their advice without careful forethought is a sure-shot recipe for disaster. The best advice often comes from those who are knowledgeable, experienced, wise, and frank.