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Investment Success Equals Diversification

If there’s one lesson to be learned from the market correction of 2008/9, it was the need for a strategy of efficient diversification.

Eamonn Ryan

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The biggest mistake an investor can make is to ignore those investment principles that we’ve heard so often they become passé, especially during a bull market when it seems even the company driver is able to make good money.

However, once the correction comes, how often do we hear that now is the time to go “back to basics”? Well, the world’s worst kept secret is that the people who make money from investing never forget the basics – like diversifying their investment returns.

Broaden your horizons

One of the fundamental principles of both business and life is to have income from several different sources, so you’re not tied to the idiosyncrasies of any one source. Well, the same applies to investment: diversify.

Business strategist and author Donald Sull, speaking to GIBS MBA students at the end of March this year, listed the single biggest differentiator between success and failure as diversification, and that applies as much to business as investment. The reason is that financial crises and market collapses are happening more often, and the cycle will continue to accelerate. His message: get used to it and realise these market corrections are the primary means of making money – not losing it.

His latest book The Upside of Turbulence demonstrates that there have been four serious global financial crises in the past 30 years, compared to four in the previous 300 years – but that the latest series of crises coincided with a period of unprecedented increase in global per capita GDP. It is a classic J-curve graph. So turbulence, volatility, interesting times – call it what you will – should be your best friend, not your worst enemy.

Beware of greed

It has always been the mantra of any financial adviser that you must diversify; do not have all your eggs in one basket; you can improve your risk adjusted return by investing in uncorrelated assets.

Despite the constant repetition of the mantra, ordinary investors seem blind to the advice. The underlying reason is usually greed. However, what people fail to realise is that no financial adviser is suggesting investors should accept lower returns in exchange for reducing risk through diversification, only that they measure those returns (which should in fact be higher, if it’s a prudent strategy) over a longer time period.

Raymond Berelowitz, CEO of SYmmETRY (Old Mutual’s multimanager arm) says people are not earning the returns they see in the media. Because investors have increasingly short time horizons they are not making the actual returns of the funds they’re in, after switching fees and other costs. Worse, through timing errors they often lock in massive losses.

One major reason for diversification is the argument proposed by Warren Buffet that the biggest contributor to long-term returns is not the rate of annual return but the occasional negative returns during market corrections – those cannot be made up. Even if your fund returned 60% this past year, it would not make up the 40% lost the previous year.

Long-term planning

Tommy Ferreira, a Citadel wealth planner, says in the short-term an investor will sacrifice some of the equity return by not being 100% invested in equities – but a portfolio should be looked at over 10 years, not three months.

“Although the 2008 market correction was as close to a synchronised (all asset classes) recession as we’ve seen since the Depression, the reality is that cash, bonds and fixed interest investments outperformed equities. You are only going to get high equity returns half the time – for the rest you need to diversify,” says Ferreira.

The theory of diversification is that each asset class reacts differently to stimuli, especially the interest rate cycle. Investors tend to look at the periodic phenomenal returns earned on the JSE, but Ferreira says the reality is that the JSE has returned on average 7,5% real (above inflation) a year since 1996. Within that, there are periods of over and under-performance.

Lara Warburton, MD of Imara Asset Management, says the past market correction was the nearest example one can find to where diversification did not help, because all asset classes were affected. But they certainly differed in their speed of recovery from the bottom. Corporate bonds recovered very rapidly, as have domestic equities. Anyone who remained invested would not have lost hugely.

Trust is vital

“The single biggest danger is panic. For those people who didn’t panic, the recovery was quick, but my experience is that people are their own worst enemies,” Warburton says.

Why this happens, she says, is that individuals do not trust their financial adviser. “The biggest impediment to advising a high net worth individual is that he is often dealing with several financial advisers, none of whom has a view on his total financial position. Often, the individual thinks this is diversification – it is not. What it is, is a group of advisers all doing more or less the same thing as each other, as they are functioning in a fog.”

Her advice: find one financial adviser you can trust and entrust all your capital to that organisation so they have a holistic view.

Before becoming a financial writer and freelance journalist in 1997, Eamonn Ryan was a legal adviser, company secretary and alternate director at listed company Cashbuild Limited from 1988 to 1997. Since becoming a financial writer, he has focused on the business and financial sectors, as well as personal finance, writing for Finweek, The Star Business Report, Sunday Times Business Times, Business Day, Mail & Guardian, Entrepreneur, Corporate Research Foundation (which brings out a series of books each year ranking SA’s best employers and best managers), as well as a host of once-off and annual publications such as ‘Enterprising Women’ and ‘Portfolio of Black Business’. He also writes media releases, inhouse magazines and sustainability or annual financial reports for various South African corporates and financial services groups, including the Ernst & Young annual M&A book.

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Investing

(Infographic) The 10 Things You Should Cover In Every Investment Pitch

If you want to wow potential investors, you need to cover your bases.

Matthew McCreary

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If you’ve ever watched Entrepreneur’s original series, Elevator Pitch, then you’ve probably seen smart founders make dumb mistakes while pitching their ideas to potential investors. They might flub an answer or get tongue-tied, or they might just be a little boring. Other times, you might notice that something seemed off about a pitch, but you can’t quite put your finger on why.

Investors are gambling every time they put money into a new project or idea. Your job when pitching is to prove to them that you’re worth the risk. That means you’ll need to not only show them the possible upside of what they have to gain, but also be clear about what they could possibly expect to lose and their odds. In other words, you need to give them a holistic view of what you do, not just the one good idea.

You might have pitched an investor yourself and thought you crushed it, only to hear that the investor isn’t interested. If that’s the case, there’s a chance the pitch was missing one of 10 essential elements.

This infographic by Buffalo 7 breaks down 10 slides you should have in your next investment pitch deck. If you’re not presenting formally, though, you can still keep track of these aspects in your head and make sure you cover each one. They include:

  1. The vision, where you concisely explain your idea.
  2. The problem. Why is your vision necessary or helpful?
  3. The opportunity. What is the market size, and how can you position yourself to earn a share of it?

Related: How To Pitch Your Business, Product Or Idea To Industry Experts

This is just the start, though. Check out the infographic below to see the rest of the slides you need when pitching investors.

1541174287_investment-pitch-infographic

This article was originally posted here on Entrepreneur.com.

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‘Shark Tank’ Investors Reveal Top 5 Tips To Make Your Business Famous

Is your business worthy of fame? If so, pay attention to what the Sharks have to say …

Eric 'ERock' Christopher

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Shark Tank enters its tenth season as popular as ever. Over the past decade, millions of people have watched fascinated as entrepreneurs pitched their business ideas and startups in the hopes of winning an investment and support from self-made millionaires and billionaires.

The multi-Emmy® Award-winning reality-based show has had a tremendous impact on the business world and has been a major influence on the increased popularity of becoming an entrepreneur. Over the years, the show has evolved into one of the world’s top platforms to launch a business and recently reached an astonishing $100 million in deals offered in the Tank.

I was recently invited to attend a private event hosted on the set of Shark Tank to celebrate their 10th season and met with all the Sharks and most of the guest Sharks for the current season. This year’s guest list includes luminaries:

  • Charles Barkley, Hall of Fame NBA star and TV analyst
  • Alex Rodriguez, legendary baseball player and businessman
  • Rohan Oza, an iconic brand builder and marketing expert
  • Sara Blakely, founder and owner of SPANX brand
  • Matt Higgins, the co-founder and CEO of RSE Ventures and vice chairman of the Miami Dolphins
  • Bethenny Frankel, TV celebrity, author, and founder of Skinnygirl brand
  • Jamie Siminoff, the CEO of RING, who rejected an investment offer in season 5, but went on to sell his company to Amazon for a whopping $1 billion.

My better half was also invited, and we arrived promptly on time at Studio 24 inside of Sony Pictures Studios in Culver City, CA. We were greeted by the cordial staff who informed us that the Sharks were still filming the last takes of the day. After several minutes, we were invited to chat with the Sharks on the main floor where nervous entrepreneurs excitedly pitch their companies to the investors under the bright lights of the studio set.

I was curious to know what excited the Sharks the most about their tenth season and what they believed to be the best advice for an entrepreneur to help make their business famous.

1. Create an ingenious product

When asked, Lori Greiner said, “It’s a mix, right? Of smart marketing and ingenious product. For example, Scrub Daddy was a technology. So, taking that one sponge, which was revolutionary, changed the whole sponge arena. We now have, to date, 20 different SKUs, and we have 30,000 new retail locations and 170 million in sales. That’s what takes it from one idea to a global brand.”

Of course, skillfully promoting your product on a platform like QVC is another excellent way to make your business famous. The day after the Scrub Daddy episode aired, Greiner helped CEO Aaron Krause sell their entire inventory of 42,000 sponges in less than seven minutes on QVC.

Related: 6 Great Tips For A Successful Shark Tank Pitch

2. Leverage social media marketing

barbara-corcoran

During my chat with Bethenny Frankel, she stressed, “Social networking is so important. Also being a little bit disruptive now … and you have to be creative. You have to be creative. The President was the most disruptive candidate that there’s probably ever been in history. He got people’s attention, and young entrepreneurs need to get people’s attention in some way. So be a little disruptive.”

Matt Higgins responded, “I’d say that you have to understand social and digital marketing. You can’t survive unless you understand Instagram, Snapchat or all the tools out there. You have to be contemporary.”

Barbara Corcoran claimed, “Every one of us successful entrepreneurs, for the last two years, were phenomenal at social media. It’s true. No exceptions.”

No smart entrepreneur will deny the power of social media when it comes to making your company famous. With more than 2 billion people worldwide using some form of social media, any business can put their business in front of a large audience, especially if they can create content that goes viral.

3. Build a community

Daymond John stressed the value of building a community. “You’ve got to build a community,” stated John. “Nobody needs to buy anything new in this world. They only buy it because there’s some form of community and/or need that you are supplying for them.”

John speaks from experience. He built a successful clothing empire by creating a vast community of his own via his clothing brand FUBU. John wisely invested in celebrity endorsements, making him an early pioneer of modern influencer marketing.

If you lack the resources to build your own community from scratch, you can leverage the power of others. Partnering with influencers who have cultivated their own communities allows you to introduce your product or service to larger audiences. In fact, some consider Shark Tank to be the world’s largest business influencer platform.

4. Devise a publicity hook to win earned media coverage

Barbara Corcoran also said, “I’d say you need a publicity hook. Some hook, angle or gimmick that grabs the attention unfairly from your competitors.”

Remember, Shark Tank is a unique combination of reality television, business acumen, and entertainment. Doing something unique, different, or disruptive can get you significant media attention and abundant free publicity… especially if you’re able to leverage that publicity and captivate the show’s producers, who decide your fate as to whether you’ll appear on the show.

Regardless if you want to appear on Shark Tank or not, being featured in the media is a way to differentiate your business from the competition and reach a broader audience. Be creative and willing to take educated risks when it comes to getting noticed by the media. You should always be actively building relationships with media representatives and ask for their insights when formulating your plan.

Related: Shark Tank Funded Start-up Native Decor’s Founder on Investment, Mentorship And Dreaming Big

5. Know your strengths and stay focused

When I asked for billionaire Mark Cuban’s insights, he thoughtfully replied, “Knowing your unique advantages, play to that, and your strengths. And focus. You know, what happens is very often people start with an idea, get a little bit of traction, then it gets hard. And when it gets hard, they start looking for other things to do as opposed to playing to their strengths. Because businesses aren’t supposed to be easy. You know, if they were easy everybody would already be rich, and we’d all be sitting on a beach somewhere. And so, when it gets tough, you gotta dig in and work hard. I’d say the final thing I’d add is that sales cures all. There’s never been a business that succeeded without sales. So, if you focus on selling … if you’re able to sell … and that’s something that is one of your core competencies, then you’ll be okay.”

These are wise words from one of the world’s few billionaires.

This article was originally posted here on Entrepreneur.com.

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The Best Way To Get Your Teenager To Start Investing Right Now

Jeff Rose advises a young fan on where to start his investment journey.

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In this video, Entrepreneur Network partner Jeff Rose talks about receiving a letter from a young investor, who is looking for advice on how to begin investing.

Rose talks about the act of actually doing the investing versus worrying about reading books or asking others about the process. Taking action gets the most results, since you are able to make mistakes and start the learning process. Taking action also leads to more experience, which is to say if you begin investing as a teen, you will be much more savvy about investing as a twenty-something.

In answering this young investor’s concern about investment direction – the fan hopes to balance short-term gain and long-term gain, as well as to establish some padding for a future business – Rose turns him in one specific direction: A Roth IRA. When he was younger, Rose didn’t even know what a stock was until far into his college years; during this time, he discovered the Roth IRA and learned of its compounding power, as well as the accessibility of an initial investment.

As another route, Rose also mentions starting a business. This path, Rose explains, will help you achieve the most return on investment.

Related: Making International Investing Simple And Transparent – CybiWealth Digital Platform

Click on the video to hear more tips for a younger investor.

This article was originally posted here on Entrepreneur.com.

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