Investing has always injected a sort of adrenalin rush into me. Analyzing, researching and picking investments undeniably strike a chord within me. Investing though is not baroquely difficult. After all, it simply requires you to (1) Maximize your wealth (2) Minimize your risk. Unfortunately fellow investors all too often blatantly ignore the second aspect. Lurked by the glitter of possible high gains, investor sometimes become overconfident do not consider their risk and start to barge into too often wishful highly optimistic predictions.

But as a well-known CEO of one of the biggest software companies in the world once said: “Predictions are a dangerous thing – especially those that pertain to the future.” I always bear two cases in mind when making predictions that help me control my risk of losing money:

(1) In 1948, Thomas J. Watson, President of IBM said: “I think there is a world market for about five computers”
(2) A researcher in the British Foreign Office from 1903 to 1950 said: “Year after year the worries and fretters would come to me with awful predictions of the outbreak of war. I denied it each time, I was wrong only twice.” Those strong in history will have remembered that two world wars occurred in this period of time.

As an ex-dealer on the local bourse, I have witnessed a situation when an investor bought a share at Mur 125 in the hope of making 15% in two weeks. The stock eventually crashed to Mur 18.You will probably be critical of my doomsayer attitude by now.

But make no mistake. In Investment- Land, a firm handle of your risk is sacrosanct. As Warren Buffet beautifully puts it: “The market, like the Lord, helps those who help themselves. But unlike the Lord, the market does not forgive those who know not what they do.”

My message is simple. Don’t be rash in your investment decision-making. Don’t indulge into wishful predictions. Instead what you should do is to carefully introspect your needs. You should carefully consider your ability to take risk, your willingness to take risk and your constraints.

Above all, always allow yourself room for maneuver. Be flexible. Last week in this very column, the author aptly lauded the benefits of diversification as a risk-mitigating device. I agree fully. If you have constructed a malleable portfolio, you offer yourself a great chance to churn your way right into Investment- Land. By the way if you feel you don’t have enough diversification opportunities, talk to us.

By Alvin JEEAWOCK
Senior Financial Analyst
Anglo-Mauritius Financial Services