The first order of business if you want to make money investing is fundamental analysis of the investment opportunity. In the years after the 1929 stock market crash that ushered in the Great Depression investors learned the concepts of intrinsic value and margin of safety. No longer was investing in the stock market akin to a trip to the casino. There are many good strategies to make money investing. For example there are many profitable real estate investing products. When the US market looks grim investing in foreign stocks may be lucrative. But to make money investing one must analyze the opportunity, determine when to get in and when to get out and decide when to cut ones losses on a bad investment. After all, the first rule of investing is not to lose money due to thoughtlessness. The second rule is not to ever forget the first rule! Let us look at profitable investments, safe investments, and how to have the best of both worlds.
Some time back we wrote about investment and the Panama Canal expansion. One cannot invest directly in the new and much larger set of locks they are building for the Panama Canal. But one can consider the consequences of the project. There are broad implications to investment up and down the Atlantic coast of the Americas. Shipping experts expect to see substantial and permanent changes in shipping patterns and trade once the so called third lane construction of substantially larger locks and widened shipping channels is completed in 2015. Whether your interest is to invest in middle class growth in Latin America or a resurging North American economy a close look at the Panama Canal expansion will be useful. The new locks will be 55 meters wide by 407 meters long. So called “cape size” vessels will soon be able to pass through the Isthmus of Panama and avoid the long and costly transit around Cape Horn, the southernmost point of South America. Consider which shippers (think Maersk Sea Land, etc.) will benefit from sending big boats through the new canal locks. And consider East coast port investment as ports from Newark to Buenos Aires build bigger cranes for off-loading bigger ships.
Safe investments include US Savings Bonds. These bonds are backed by the full faith and credit of the US government. But they are not tradable. US Treasury bills on the other hand are tradable. Thus, if you buy when interest rates are high you can reap a profit by selling when rates fall. You can make money investing in US Savings Bonds and US Treasuries but commonly you will barely stay ahead of inflation. The issue is how to gain profits when the world changes as in investing in opportunities that emerge from the Panama Canal expansion and retain some of the safety of investing in US Savings Bonds.
The Best Mix of Profit Potential and Safety
Two principles should drive all investing, intrinsic value and margin of safety. The intrinsic value of stock is its anticipated future earnings discounted to current value. The same thinking can be applied to the intrinsic value of overseas investments, investing in gold, or investing in real estate around the corner. Using the Panama Canal expansion as an example, the project is large, real, and easy to follow by visiting the web site of the Panama Canal Authority. The news is full of items related to this project. Analyze the fundamentals, consider the margin of safety of a real bricks and mortar project, and diversify your portfolio to take advantage of the various aspects of this opportunity, shipping, freight handling, and economic growth across the Eastern shores of the Americas.