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- The five most common investing mistakes and how to avoid them
Be it at a cocktail party or at lunch: there is always someone chattering about the best stocks, Bitcoins, commodities and other fancy investments. Admittedly, it is fun to get involved in the discussion, but you must never forget about the common sense of investing. There is nothing wrong about making mistakes though. Quite the contrary, making mistakes is crucial to help you learn and grow. Of course, this is also true in investing. However, you must learn from your mistakes and try not to repeat them. In the following, I will outline the most common investing mistakes I haven seen during my years working within the financial services industry. Unfortunately, contrary to what you might expect, they are made not only by inexperienced investors but also by subject matter experts (including myself, of course). First: Not knowing who you are in the context of financial markets Simply put, there are two types of players it the financial markets: speculators and investors. Speculator, in this definition, refers to someone who just hopes that some event occurs without knowing the odds. Investing, on the other hand, means to know what you are doing. Hence, you can only be an investor if you know the risk you are bearing and the reason why you invest in a certain security. An investor always invest in an asset with the best risk-return-ratio, i.e., Sharpe Ratio. I always hear people talking about an individual company they would like to "invest" in. Asking for their reason they start arguing about the bright future of the company and that the stock price has no other option than to keep rising. The same is true not only for stocks, but also for other fancy things such as Bitcoins. However, you can only call it a true investment once you fully understand its underlying fundamentals. For instance, in the case of Bitcoin, has a long-term value investor you would quickly realize that everything you do as a private person can only be pure speculation due to the missing value creation. Second: Thinking that you can beat the market by actively picking superior securities As an investor you basically must select one out of two approaches: active investing or passive investing. As a passive investor you will just hold a portfolio that consists of a broadly diversified low-cost index fund plus some treasury bills - depending on your individual level of risk aversion. On the other hand, active investing means you would pick very few individual stocks and bonds based on their underlying fundamentals and their intrinsic value. As an active investor you must be very experienced in subjects such as valuation, accounting, strategic management etc. It is very time consuming and hard to find promising investments with superior returns than those the passive investor can expect. It is very hard to except that the active approach is only for a very limited number of people. Even if you are a billionaire the passive approach is very likely to be better choice. For instance, you often see professional athletes starting their own venture capital fund, restaurants, fashion labels etc. From a pure mathematical point of view, they are better of to just follow the passive approach, too. See here what Warren Buffett recommends to LeBron James on how he should best invest his money: Unfortunately, I still see many people trying to follow the active approach, albeit lacking both the time and the skills needed to be successful. Hence, you should not act against your odds. I think the main reason why many people still cannot just stick to the passive approach is that you basically must admit to yourself that you will not get rich fast, but after a long time when the power of compounding starts working for you. If you decide to pick individual securities you want to keep the possibility of becoming very reach very fast, but poorer even faster and more likely. Just admit to yourself: from a mathematical, i.e., finance theory, perspective there is no way to get rich fast. If you want to go to the casino, of course, there is a chance you buy your Ferrari by tomorrow, but this does not mean it is the best way to go. Third: Having the illusion that the odds are shared equally between all market participants That being said, people often claim they know something better than others, e.g., that a stock price will keep rising in the future. If you argue in that way you claim to be smarter than the entire market. Explaining them about the financial market theory they stress that the underlying assumptions of the theory are wrong and that markets are not efficient. It is not that I don't agree with them. Indeed, some of were already proven to be unrealistic. However, the financial market is also full of big players with an incredible amount of resources. Simply put, wall street traders are able to gain an edge over private traders, because they act fast and with an amount that shifts the whole demand curve and, hence, the entire market price. Even if you are a millionaire with a high-speed internet connection at home you can be sure wall street is acting faster upon new information. You should just stay out of the short-term trading game and rather focusing on long-term investing which is based on true value creation of the underlying businesses. Hence, even though some of the theory's underlying assumption are might not be fully realistic, you should still accept the fact that financial markets are indeed very efficient most of the time. And if some inefficiency like arbitrage or excessive volatility arises you can be sure that Wall Street will act way faster than you ever can as a private investor. Private traders cannot beat the market - not even millionaires. Wall Street makes money because they are acting fast, you make money because you acting very very slow, i.e., you invest for a very long-term. Fourth: Ignoring liquidity management As mentioned, investing for the average joe - even the wealthy - must be long-term. That being said, along your investment cycle you will see a lot of ups and downs in market prices. You must not only have the patience and courage to ignore those movements, but also hold sufficient cash at hand to cover all your private expenditures. To put simply, only invest the money in the stock market which you don't need for a minimum of 10-15 years - or even longer. To make it clear, if you want to save for your children's education in five years, don't do it by investing in stocks. If you want to buy a house in eight years, don't do it by investing in stocks. Instead, put your money into something that is more liquid like treasury bills. If you need cash within a very short period and as a risk buffer for hard times you should put it to a regular savings account. Fifth: Ignoring the cost of investing I already stressed that as a passive investor you will not get rich over night. However, you will become incredibly wealthy over the long-run if you let the magic of compounding work for you. Compounding is pure math, i.e., exponential growth. As humans, we often lack imagination about what exponential growth means. To emphasize this let us just assume you would invest 50.000€ today into a portfolio that would provide an annualized return of 8%. After 5 years you would have only 73.466€, but after 40 years already 1.086.226€, after 100 years 109.988.062€ and after 200 years you would be one of the wealthiest people on the planet with 241.947.479.245€. Sure, most of you would argue now that 200 years is more than a lifetime. That is true, but think about your children, too. However, a lifetime is indeed sufficient to enjoy a lot of the power of compounding. Speaking about returns compounding works in our favor, but costs can easily grow on an exponential basis, too. At first sight, the costs that come along with investing seem to be small, but over the long-term the costs can easily eat up your returns. Hence, you should always focus on the cost of investing. Try to reduce your portfolio turnover to a minimum and stop trading.
- How networked markets revolutionize whole industries
Platform Revolution helped me to better understand how platforms reshape whole industries. It is a great read for everyone involved in strategic decision making. The platform business model underlies the success of many of today's most disruptive and innovative companies. Learn about the key elements of a strong platform strategy and how to manage them. Platform Revolution also stresses the difference between a traditional pipeline and a disruptive platform. It comes along with great practical examples of companies such as Airbnb, Tinder, Uber, Google, Apple and others. Platform Revolution It is not only a great for strategic decision makers and consultants, but also for active investor. That is, as an active investor you need to understand the company and its business model you want to buy in full depth. The book is available in both Englisch* and German*. *Amazon-Partner-Link
- Why are platform business models so successful?
Have you ever wondered why companies like Google, Apple, Facebook, Airbnb and Microsoft are more successful than others? The answer lies within their platform based business models. The following article provides a summary on the key elements of a platform business model. Speaking about a traditional company's value chain all steps are sequential. That being said, you start with the research and development of a product or services, then procure raw materials, followed by production, marketing and (after)-sales. This is called classical pipeline business model: On the other hand, a platform business model does not follow sequential steps. Instead, the platform enables its users and other third-parties to exchange goods, services or information. Unfortunately, even the biggest companies still often misunderstand a platform as something where you make upload and downloads and exchange something. Why are platforms so successful? A platform develops its full potential only when you allow value creation on the platform not only by the users, but also by allowing external developers. For instance, LinkedIn is a platform that provides value to its users because of the content offered by the users themselves. The more users interact, the more valuable the platform. Still, in addition, LinkedIn provides APIs to external developers so they can integrate LinkedIn features with for, e.g., external sales engines to gain leads. A very strong and scalable platform even manages to turn customers into suppliers and vice versa. For instance, you can be a host at Airbnb and at the same time use the platform to find a nice Finca for your next vacation. An Uber driver can also use the platform to get home after spending a nice evening in the restaurant with friends and wine. Hence, the company which owns, i.e., manages, the platform must not exclusively be responsible for the content. In fact, it would even limit the scalability of the platform. The critical factors of an innovative platform strategy It all starts with a clear vision and mission not only for the platform itself but for the whole business. From there, you can formulate the strategical key elements in the traditional way. Never forget that a good strategy needs to have trade-offs, i.e., to define what your platform will not do. It helps to keep focus. Too many companies care about monetization already from the very beginning. Instead, they should rather rely on the growth and quality of the platform first and only discuss monetization afterwards. That being said, a successful platform strategy also abandons classical KPIs that are more relevant for the pipeline. Better focus on customer centric metrics such as growth of active users. I already stressed the greatness of a platform to be the scalability by having customers and externals creating content for themselves. However, as a platform provider (manager) you need to set ensure the platform still offers qualitative content to its users. That is, you need to ensure a positive network effect. For instance, Tinder needs to ensure the platform growth to be equally shared between girls and men. Suppose women on Tinder would get too many inappropriate messages. They would quickly abandon the platform and cause negative network effects to occur. On the other hand, if men would never find attractive women on Tinder at all, they would also abandon the platform and cause negative network effects, too. Thus, Tinder - as being the platform manager - needs to balance the growth of the platform and ensure its quality for all users. To summarize, an innovative platform business model with a great strategy is capable to transform a whole industry.
- Bücher | Dividendo
Arne 9. Mai 2020 2 Min. What to read for the serious investor? Reading is key to educate yourself - not only in finance. BUCH- REZENSIONEN Mehr Rezensionen Arne Jan 17 1 Min. How networked markets revolutionize whole industries Arne 26. Dez 2020 1 Min. The secret to become wealthy Arne 26. Dez 2020 2 Min. The definitive book on index investing you must read Arne 13. Dez 2020 1 Min. Why stocks are superior investments on the long run Arne 13. Dez 2020 1 Min. Why I think the world is improving but still to be improved Arne 13. Dez 2020 1 Min. Lessons from a 100-Year-Old Man Alle Bücher
- Trainings | Dividendo
Nimm deine Finanzen selbst in die Hand. Steigere deine finanzielle Bildung. Deine Vorteile Bilaterale Kurse - um auf jede deiner Fragen und deine individuellen Bedürfnisse bestmöglich eingehen zu können, finden alle Kurse nur zu zweit statt Günstige Preise - da es mir primär um die Vermittlung von Wissen geht, senke ich die Kursgebühr auf ein Minimum Wissenschaftliche Grundlagen - in allen Kursen vermittle ich dir die wissenschaftlichen Grundlagen, um dich in die Lage zu versetzen selbstständige Finanzentscheidungen treffen zu können Praktische Investment-Tipps - wir schauen nicht nur auf die Theorie allein, sondern in jedem Kurs gebe ich dir auch praktische Tipps mit an die Hand Meine Kurse Investieren für Einsteiger 190€ Du möchtest endlich anfangen deine Finanzen in die eigenen Hände zu nehmen? Du möchtest für dein Alter vorsorgen, weißt aber nicht wie Finanzmärkte funktionieren? In diesem Kurs lernst du die Grundlagen des Investieren und die übergeordneten Zusammenhänge mit anderen Themengebieten wie dem Steuer- und Gesellschaftsrecht. Bitte kontaktiere mich zwecks Buchung unverbindlich über das Kontaktformular. Buchen Einführung in die Kapitalmärke 290€ Du besitzt bereits finanzielles Vorwissen, möchtest dich aber jetzt detaillierter mit den Kapitalmärkten auseinandersetzen? In diesem Kurs lernst du mehr über Investmententscheidungen sowie Risiko- und Portfoliomanagement. Außerdem zeige ich dir, wie sich die wissenschaftlichen Erkenntnisse in der Praxis umsetzen lassen. Bitte kontaktiere mich zwecks Buchung unverbindlich über das Kontaktformular. Buchen Investieren in der Praxis 210€ Du möchtest verstehen, wie führende Investoren wie Warren Buffett oder Ökonomie-Nobelpreisträger ihr Privatvermögen in der Praxis anlegen? In diesem Kurs lernst du, wie du die wissenschaftlichen Erkenntnisse in der Praxis anwenden kannst. Außerdem zeige ich dir, welche die rationalste Methode ist, um sein Geld langfristig anzulegen. Bitte kontaktiere mich zwecks Buchung unverbindlich über das Kontaktformular. Buchen Hinweise Keine Anlageberatung - ich führe keine individuelle Anlageberatung durch, sondern möchte echtes Finanzwissen vermitteln Keine Steuerberatung - ich erkläre dir gerne den Einfluss von Steuern auf deine Anlageentscheidungen, aber ich führe keine individuelle Steuerberatung durch Keine Spekulation - ich stehe für langfristiges Investieren und nicht für kurzfristige Spekulationen Kein Hass - ich biete keine Kurse für Verschwörungstheoretiker, Rassisten oder andere Leute mit menschenfeindlichen Ansichten an - dafür ist mir meine Zeit zu schade - ich möchte mich mit coolen Leuten austauschen