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The Business of Investing

The 4 rules every woman needs to become a successful investor (plus 5 reasons why it’s time to become one!)

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One night, Robert and I had dinner with Dave Ramsey, a very popular personal money-management proponent. He looked at us and asked, “Do you know what the difference is between the two of you and the rest of us teaching personal finance?”

Not sure of what he was getting at, we shook our heads no.

He said, “You two look at everything through the eyes of an entrepreneur, including your investments. You look at everything as a business.”

Every investment is a business

Robert and I talked about Dave’s comment on the drive home. He was right. We view everything we do through the lens of entrepreneurship.

What exactly does that mean?

In the world of investing, it means that every investment is a business. It has its own income statement and balance sheet, must have sales and marketing driving it, must be profitable to survive, must have a team behind it, and must have a purpose for existing. These are the fundamentals of a successful business, and they are also the fundamentals of a successful investment.

Maybe at this point, some of you are saying, “Yeah, but I’m just buying a few shares of stock. I don’t need all those things.”

Perfect example. What does every stock represent? A stock is a share of company. Does a company need sales and marketing, accurate financial statements, a strong management team, a purpose or mission, and a good revenue stream to succeed throughout the years? Yes, of course it does! Yet how many people do their homework and research the fundamentals of the company they are investing in before buying a share of stock in that company? Very few. But I can tell you that Warren Buffett does.

The 4 rules of every investment

I have been an entrepreneur since 1984 when I started my first part-time business with no money and no experience. It was “do or die” through trial and error. Through the eyes of an entrepreneur, here are the investment rules I live by:

  1. The investment must put money in my pocket

    First, I look for cash flow. Second, I look for appreciation. Remember, a good investor is in the business of building her asset column. Any investment that doesn’t put money in your pocket isn’t an asset — it’s a liability.

  2. The investment must stand alone

    An investment cannot survive off the cash flow or funding of another investment. In the world of business, you cannot use the wealth of one business to keep a subsidiary business alive. Each business must be profitable in and of itself. The same is true for investing.

  3. I want to control the investment whenever possible

    In real estate and my businesses, I control the income, expenses, and debt. With investments such as privately-held businesses and commodities where I don’t control these things, I do my best to actively monitor and stay on top of what is happening. Never stop looking at ways to improve the investment and increase its value or the value it returns to you.

  4. Every investment must have an exit strategy or exit options

    The rule is: know when you will sell before you buy.

    This may be based on price, date, certain market events, or personal events.

    For example, Robert and I tend to hold onto our real estate investments and not sell. Yet, we know what it would take to sell. In 2006 when the real estate market was at its peak, we were offered an extremely high price for one of our apartment buildings that was operating at maximum cash flow. We sold that property and moved the profit into a larger apartment building that gave us a much higher return on investment.

5 reasons why women should invest in business

If you’re still sitting on the sidelines when it comes to investing, it’s time to step onto the field. We all know that a man is not a plan, and we cannot rely on others — including your family or the government — to take care of us. Here are five reasons why now is the time for women to get into the game of investing:

  1. Avoiding dependency. You don’t go into a marriage expecting a divorce. You don’t begin a new job expecting to be laid off. But it happens, and today with more and more frequency. I’ve said this before, but, women, if you are depending on a husband, a boss, or anyone else for your financial future, think twice. They simply may not be there. Too often we may not even realize just how dependent we are until we’re faced with our own personal wake-up call. Learning to invest allows you to depend on yourself, not on others, for your financial well-being.

  2. No glass ceiling. In the world of investing, the markets don’t care if you’re female or male, black or white, a college grad or a high school dropout. The markets only care about how smart you are with your money. The key is education and experience. The smarter you are with your investment choices, the greater your success as an investor. There are no limits, no ceilings, glass or otherwise, for women in the world of investing.

  3. No limits on income. We may not like it, but there is still a glass ceiling and wage inequality in the work world for women, and because of this a woman is often limited in the amount of income she can make as an employee. In the investment world, you are completely responsible for and in control of the amount of money you make.

  4. Increased self-esteem. Personally, I think this is one of the greatest benefits to women investors. It’s not unusual to have your self-esteem linked to your ability to provide for yourself. I’ve seen women’s self-esteem soar once they know how to make it on their own financially. And when a woman’s self-esteem rises, then relationships around her tend to improve, her life improves overall, and she feels good about herself. Increased confidence leads to higher self-esteem. Higher self-esteem leads to greater success. And greater success leads to financial freedom.

  5. Control of your time. As an investor you are in control of your time. Investing is something you can do part time or full time. It is something you can do from home, from the office, or from anywhere. It is also something into which you can include your children. Many mothers have told me they take their children to look at properties or potential business investments. And a big plus is that when you include your children in the investment process you are actually teaching them to be investors as well.

Moving beyond average

At the end of the day, Robert and I have become very successful as investors precisely because we view each investment as a business. Most average investors don’t do this, and as a result, they have average results. We also love the perks of the lifestyle, including all five of the aforementioned benefits.

It takes a certain amount of financial education and IQ to look at investments this way, but in the long run, it’s extremely important to have and build this mindset. I encourage you to start growing your financial knowledge today and begin learning the ins and outs of viewing everything as a business.

Original publish date: February 06, 2014

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