Piggy’s Trading & Investing Tips: It all begins with a humble penny!

Source: piggybankadvisor.com

JUST as CNN’s Richard Quest would exclaim on his Quest Means Business show, “It all begins with a humble penny”, personal budgeting is the foundation of effective financial management.

Budgeting is a simple process that involves creating a plan on how to spend your money. In fact, it is recommended that you call it a “spending plan”.

Creating this spending plan allows you to determine in advance whether you will have enough money to do the things you need to do or would like to do.

 A spending plan motivates you to:

Gain control of your own finances;

Get out of or stay out of debt;

Create a nest egg for unforeseen expenses;

Resist the urge to spend impulsively; and

Achieve goals that you have set for yourself and your family.

Creating a detailed spending plan is key to managing your finances. It is also recommended that a spending plan be put down on paper or in a basic spreadsheet.

Overall, an accurate monthly spending plan can help individuals and households reach their financial goals, whether they are saving for a car, buying a home, or paying off student loans.

So, what’s the plan of action?

Draw up your spending plan (budget);

Commit to the plan and get your loved ones to buy in to it too; and

If you are unsure or unable to find ways to save, speak to a financial advisor.

As a guide, the following is the 100% rule of thumb spending plan:

Once you create your first spending plan, begin to use it and get a good feel for how it can keep your finances on track. Households and individuals can also want to map out their spending plans for six months to a year down the road.

By doing this, they can easily forecast which months finances may be tight and which ones they may have extra money. This assists in avoiding some financial shocks as well as slipping into debt.

Overall, Piggy believes that every penny has power and it is not about the quantum but all about what you do with the penny. One interesting avenue of preserving money is building a personal investment portfolio on the stock market.

In his book, The Intelligent Investor, Benjamin Graham describes an aggressive investor as an enterprising security buyer who desires and expects to attain better overall results than his defensive or passive companion.

According to Graham, it is important that the enterprising investor starts with a clear conception as to which courses of action offer reasonable chances of success and this may include the following:

Trading in the market: this means buying stocks when the market has been advancing and selling them after it has moved downwards.

Short-term selectivity: this means buying stocks of companies which are reporting or expected to report increased earnings, or for which some other favourable development is anticipated.

Long-term selectivity: the emphasis here will be on an excellent record of past growth which is considered likely to continue in the future. In some cases, also the “investor” may choose companies which have not yet shown impressive results but are expected to establish a high earning power later.

According to Graham, stock trading is not an operation, “which on thorough analysis” offers safety of principal and a satisfactory return.

In his endeavour to select the most promising stocks, the investor faces obstacles like human fallibility and competition. He may be wrong in his estimate of the future while the current market price may already fully reflect what he is anticipating. Overall, there is a possibility of outright errors.

Graham then comes up with a conclusion that: to enjoy a reasonable chance for continued better than expected results, the investor must follow policies that are (i) inherently sound and promising, and (ii) are not popular on the market.

Piggy believes that the answer lies in developing a sound investment policy and strategy over time. The stock market has various possibilities of achieving better than expected results.

There is a huge list of securities from which a fair number can be identified as undervalued by logical and reasonably dependable standards.

Here are some of Warren Buffet’s investment principles that one can build on:

Invest in what you know

Before buying a stock, list the criteria

Be aggressive during tough times

Do not worry about the day-to-day market movements

Buy Buffett’s stocks

Learn more about monet, investing and trading by joining a PiggyBankAdvisor WhatsApp Group (+263 78 358 4745).

Matsika is the head of research at Morgan&Co, and founder of piggybankadvisor.com. — [email protected]/ [email protected] or +263 783 584 745.

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