Saturday, February 19, 2011

Investment Practices: Making New Valuations

It’s important to understand the industry in which you invest your money. An important rule of thumb is to invest in what you know. You should do research before investing in a new industry. An entire industry may be overvalued, and if you are not alert to relevant information in the industry, then you may invest in companies which look good on the surface, but which are fundamentally flawed.

An entire industry may be on the verge of collapse or a radical transition, and if you are not privy to subtle aspects of the industry, then you may invest in a company that refuses to change with the tide. The company may appear to be a reasonable investment when considering it in the light of only the past, but investors should be studying the future as well as the past and present conditions.

Any particular valuation you read or hear from someone else should only provide a starting point. Always research your investments before you make them. In general, stick to the things you know or the things you are interested in knowing. Don’t just invest on a hot stock tip if you are unsure of the real risk. All investments do contain some risk, so do your homework first. A prudent investor will win the big game.

Investors should be studying the market now, because it is in transition from an industrial economy to a sustainable economy. At this time, in early 2011, the stock market as a whole is overvalued. There are many good investments out there, but the wise investor will look diligently for the sustainable businesses and reject the unsustainable businesses.

The prudent investor will make a new valuation of their portfolio, and use it to determine which of their investments are no longer suitable for their long term financial goals. Always make a complete valuation of a business before you invest, and review your investments to determine if they are on course.

Serious investors who like the companies they have money invested in should contact them and advise them to apply the Formula of Sustainable Design to their business to keep it competitive. Urge them to adopt sustainable concepts and designs. Don’t be a passive investor, be an active and suggestive investor.