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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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Summary

  • Every investment should be viewed as a business

  • There are many benefits to investing—when done the right way

  • Increase your financial IQ to become a successful investor


Dave Ramsey, a very popular personal money-management proponent, once asked Robert and Kim Kiyosaki “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, they shook their 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

Dave was right. They do view everything they 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 a 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 (except for the likes of Warren Buffett).

How to invest in a business: the principle 4 rules

Through the eyes of an entrepreneur, here are the investment rules to live by:

  1. The investment must put money in my pocket

    First, look for cash flow. Second, look for appreciation. Remember, a good investor is in the business of building his or 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 on 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. Control the investment whenever possible

    In real estate and business, you need tocontrol the income, expenses, and debt. With investments such as privately-held businesses and commodities where you don’t control these things, do your 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 Kim tend to hold onto their real estate investments and not sell. Yet, they know what it would take to sell. In 2006 when the real estate market was at its peak, they were offered an extremely high price for one of their apartment buildings that was operating at maximum cash flow. They sold that property and moved the profit into a larger apartment building that gave them a much higher return on investment.

5 reasons why you 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 we cannot rely on others — including our family or the government — to take care of us. Here are five reasons why now is the time for you 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. If you are depending on a spouse, 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 anyonein 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, and because of this, people are often limited in the amount of income they 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.

    It’s not unusual to have your self-esteem linked to your ability to provide for yourself; and when one’s self-esteem rises, then relationships around them tend to improve, their life improves overall, and they feel good about him or 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 and loved ones. And a big plus is that this inclusion in the investment process is actually a method to teach them to be investors as well.

Moving beyond average

It takes a certain amount of financial education and IQ to look at investments as a business, but in the long run, it’s extremely important to have and build this mindset. 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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