We all are smart apes who tend to become really enthusiastic about certain things. Let’s take Bitcoin for example, there’s a good chance it may fail, yet there are people who invest all of their life-savings into it. Here’s what the smart money does – instead.
First, let me talk a little about the psychology of making good investments. I truly believe that we first need to understand how our brain works before we can make better investment choices.
1 About Being Realistic
The problem is that all too often we get attached to something so much that we fail to recognize the downside. We read so much about a certain investment (be it a stock, commodity or real estate) that we get very euphoric and simply ignore the many downsides to any investment and only look at the upside. Companies can fail. Bitcoin can fail. New websites can fail. A new product line can fail. It’s not in your hands, all you can do is diversify and follow the smart money.
I have learnt it the hard way by investing a lot into a company that went bankrupt and filed for chapter 12. You simply ignore the obvious. And if you don’t have the guts to look the truth into the eye then you’re going down. In the end for me it was the most valuable lesson I’ve learnt when it comes to investing and I luckily did end up breaking even.
Now it’s common sense to diversify, but when you have cash to burn and a nice residual income, you can get overconfident very quickly. I’ve seen a lot of people get burnt investing into Bitcoin at its all-time high over $1000. And it happens over and over again, every day, that people invest at the top and sell at the bottom. It’s basically in our genes and has to do with the way the human brain works – and because we tend to do that, it’s even more critical to diversify and never invest 100% of the sum we intend to invest. But let’s not stop there. It is not sufficient to diversify a stock portfolio. You need to diversify your entire wealth.
2 Diversify Everything
I made it a habit to diversify everything, even things not related to investments. Redundancy and diversification is (in my opinion) a critical step towards success in many areas. Of course, you shouldn’t end up doing 20 things at once, focus on your strengths. What you need to do is to identify the key areas you’re really good at. You need to acknowledge that not all of your investments can be a win and at times it can be important to cut your losses early on. If you don’t react, losses can deepen quickly. On the other hand you need enough confidence and foresight to hold a solid investment for a few years, even if it drops 20% or more.
You have to figure out what you’re interested in and get to a point where you have enough experience to justify an investment. Art, old cars, old coins, stamps, it doesn’t really matter what you’re interested in, there is something that will be worth a lot now and even more in the future.
Again, don’t put all of your money into a single investment type. Identify at least 3 different types of investments that suit you and your skills.
3 Embrace Setbacks
It took me a long time to learn this lesson and I was angry with myself for a long time after making some investments I lost money on. One day I realized something: Someone who always wins will never truly evolve. It’s like playing a game of chess. If you win all the time, you should seek out more skillful players so you can lose some more. If you don’t, because your ego gets in the way and you only want to win, you’re just another ‘wannabe’ who will never evolve and never master chess.
I believe it was Plato who said that we need to embrace lives filled with misery and tragedy, because they are the most valuable for a person to grow. So, next time you run into some major obstacles or setback, don’t ask “why me”, respond with a “Hell yea! Now more than ever”. Giving up is easy, everyone can do that, but having the fortitude and willpower to continue is what sets successful people apart from the rest.
4 Various Investment Ideas
Lastly, let me share a few investment ideas. I will stick to meta-recommendations instead of giving you precise names, so you have to find out who’s the market leader yourself and may discover alternatives along the way:
- 1 – M2M Companies (Huge Industry)
- 2 – (Organic) Food Companies (Industry Growing Double Digits Until 2018)
- 3 – Water Companies (May Be Privatized)
- 4 – Virtual Reality Companies (Next Step Of Video Gaming)
- 5 – Dividend Stocks (Solid Earners)
- 6 – Digital Currencies
- 7 – Art For The Upcoming Recession
- 8 – Rare Collectibles
- 9 – Fine Wine
- 10 – P2P Lending (https://bitlendingclub.com/)
- 11 – Premium Dot Coms
- 12 – YOURSELF / EDUCATION
The best investments will not even be on your radar, so it’s worth doing some extra research on trends we may see develop until 2020.
Don’t have any residual income yet? Read our ideas on how to make a residual income.