Venture capital is that level of investment that typically takes place before a company goes public. It’s a high-stakes game, involving both risk of massive losses — including the entire investment — as well as generating incredible returns.
Back in 1952, long before everyone and their mother could discuss the benefits of adopting a holistic approach to their personal health, economist Harry Markowitz introduced theory recommending a holistic approach to one’s financial health. Known as Modern Portfolio Theory (MPT), it’s just as popular today as it was back in 1990, when it won Markowitz a Nobel Prize.
One day, you fire up Google Finance to check on your favorite investment. Maybe it’s Netflix (NFLX). You see that the share price is up $2 or down $10. Maybe even both within a one-hour period. Why is that? Who decided that? You did. Well, you and a few million other people, including me.
Uber… Spotify… Airbnb… These companies offer super-popular services and could make great investments for your portfolio. But there’s just one problem: They haven’t had their IPOs yet. In fact, the entire IPO calendar for 2017 is unusually bare. Why is this?
There are many competing investment theories about how to find the “best” investments based on your time frame, risk tolerance and specific objectives. One approach, dating back at least to Benjamin Graham’s 1949 book, The Intelligent Investor, is to identify “undervalued stocks” that for one reason or another are selling at prices far below their underlying values.
Millions of people invest in stocks, but it’s likely that relatively few give much thought to what causes the stock market to rise and fall. Yes, selecting the right companies is critically important. But as the saying goes, Timing is everything. And that’s why it’s important to be aware of major factors that impact the stock market and to pay attention to changes in those areas to get a handle on where the market may be heading.
Over time, investors find their portfolios become increasingly complicated and cluttered. I was surprised a few months ago when I looked at my situation and discovered I had several accounts with various discount brokerages. Not only that, but I had been trying a few investments here and there, resulting in overlap. I also had random assets that didn’t really fit my investing plan. My portfolio had, with very little effort on my part, become complex and bloated.
One of the most predictable events in investing is a downturn in the market. There’s no way to know when one will come, or how severe it will be, but it will come. And it will happen no matter how strong a given market seems to be. With that reality in mind — and given that the current bull market has been running without serious interruption for more than six years — this is an excellent time to prepare for it.
Every once in a while the stock market suffers a schizophrenic break from its normal humdrum up a bit,down a bit daily routine. In late August and early September of 2015 we observed one of those psychotic episodes. Stock market investors were dizzy with vertigo from the wild daily fluctuations (mostly negative) of hundreds of points in the Dow Jones Industrial Average.
September is National Preparedness Month, which is a good reminder that we should also prepare our investment portfolios for whatever might happen. What could possibly happen to our investment portfolios? In truth, outside of the usual threats of recession, inflation and stock market crashes, it doesn’t seem as is if anything else ever materially affects investments. But this is only half-true.