I’ve been talking with quite a number of people about the subject of investing and financial management lately and I’ve realised that this is one thing that many people know very little about, even though it is something that is highly important to them. It seems to me that most people see investing as another form of horse race betting – just buy the stock that you hear that your friend’s (who happens to be an extremely reliable source, seriously, even though he ain’t a multimillionaire like successful insider traders are) claims will “definitely go up”.

Well, it if that’s what you call investing, it really sounds like gambling to me.

In my opinion, there’s no free lunch. If you want to make money out of something, you have to be able to offer some kind of value, or possess some kind of competitive advantage that other people don’t. When it comes to investing, it all boils down to having superior knowledge to make superior decisions. People very often invest large sums of money in hopes that they’ll just “strike it rich” – that’s gambling for you – but what they also need to invest, if they want to make it big is something way more precious than money – time.

“So if you want to invest with very low risk and high returns, you have to pay the price. And the price involves study, lots of study.”
- Rich Dad, Rich Dad’s Guide to Investing

To be able to make good decisions and good calls, you have to thoroughly understand your investments. You should understand how the company whose shares you are buying generates revenue, what it’s capital structure is like and where it derives the majority of it’s cash flow and a host of other important factors before you get your broker to buy those shares. Warren Buffett, the most highly acclaimed investor of our time claims that he “never invests in a business he doesn’t understand”, and neither should we. Only through properly understanding the ins and outs of a business can we be able to make a solid evaluation of how sound a business proposition or model is.

But even if you have thoroughly researched your subject, when we’re dealing with something that people can get really, really emotional about – money – it’s easy to make wrong decisions due to fear and peer pressure. I think it is really important that one learn to make good, sound investment decisions on his own, and not have to rely on market sentiment and “hot investor tips” to make decisions. When decisions are based on weak information like this, it definitely can’t be a good decision that you’re making.

“The number one control you must have to be an investor is control over yourself. If you cannot control yourself, the highs and lows of the market will run you and you will lose during one of these ups and downs. The number one reason people are not good investors is that they lack control over themselves and their emotions. Their desire for security and comfort takes control over their heart, their soul, their mind, their view of the world, and their actions. As I said, a true investor does not care which way the market goes. A true investor will make money in either direction. So ‘control over yourself’ is the first and most important control. Got it?”
- Rich Dad, Rich Dad’s Guide to Investing

Investing is something that is really important to me as it is definitely something I have to go into for my million-dollar plan to work. But before I go into it, I know I have to learn all I can know about it first. So let me know if you guys know of any good books to read about concerning investing! I’ll love to learn more!