Long term management of assets is more than learning fundamental analysis of stocks, diversification of a stock portfolio, and choosing high paying dividend stocks. Profitable asset management involves choosing between investments in real estate, offshore investments, growth markets at home and abroad, stable consumer products companies, and interest bearing investments. Profitable asset management often has to do with holding cash when no investment options are clear. Profitable asset management is determining a time line for the use of investment capital. A profitable investment timeline for retirement will differ from investing to buy a home or investing to build assets to pass on to your children. Remember the miracle of compounded returns on stable investments for profitable asset management and remember to always assess the intrinsic value and margin of safety of any investment.
Those with a large amount of wealth keep their wealth by avoiding risky investments. That is not to say that a large investment fund cannot look to get in on the ground floor of the next Microsoft or Google. Rather in profitable asset management the asset manager balances his or her approach to avoid putting all eggs in one risky basket. One way to protect against risk when investing in small cap growth stocks is to invest small amounts in many of them.
As the authors of A Random Walk Down Wall Street mention, investing in around 40 small cap growth stocks improves the odds of finding a spectacular winner than will grow a thousand fold. It also diminishes the likelihood of losing all investment capital when a single stock goes belly up.
Staying Ahead of Inflation
Inflation eats away at wealth. Thus profitable asset management deals with staying ahead of inflation. The calculation of intrinsic stock value, or value of any potential investment, compares the investment with the current rate of US Treasuries, a good measure of inflation. By using the rate of the ten or thirty year bond as a guide, long term asset managers seek to gain the rate of inflation and a few percent more per year on the various assets in their portfolios.
Seeing the Future and Investing in It
The old AT&T was a great growth stock for the first part of the 20th century. America was expanding and putting telephones in virtually every home.
This company had the monopoly on long distance service and most local service. Those who saw the dynamics of this movement invested in AT&T and prospered. Coca Cola was not always a large cap stock. But those who recognized the popularity of the beverage and the soundness of the company’s management prospered for generations. Those who invested in Microsoft when it first issued stock have seen their investment multiply twenty thousand fold.
Today the stock pays a healthy dividend and is pretty much done growing. However, from the view of profitable asset management, a dollar invested in Microsoft when it went public now pays for itself nearly a thousand times over in current dividends. Think of Apple when Jobs came back. Now think of profitable asset management with investment in a few well-chosen stocks that may change the world. Whether you goal is investing for retirement or even the longer term for your kids, a balanced approach is to pick a range of investment vehicles and follow the fundamentals on each frequently.