I’d totally understand if you were to say to me:
“Mwalimu, aki I am NOT a risk taker.”
I have been there… still there actually, just one foot out the “not a risk taker door.” You see, I had to develop my risk appetite. When it comes to money, no one wants to play around. (Hence Rihanna’s B*&ch better have my money) And the same attitude we carry with us when it comes to investing. Whether we are thinking of starting a business, buying shares, going into real estate, we can be reluctant to jump in because, what if we lose it all? ALL? Why all? That there could be our first mistake.
It should never be a thing of all or nothing. This is life, not poker! Never go into any investment with everything you have. Put in an amount that should you lose, your pocket won’t suffer tremendously. It’s not you being scared, that’s you being smart. Especially for beginners of investing like us. At the end of the day yes, there is a possibility you may lose. But don’t lose it ALL. This will enable you to learn what went wrong and hopefully correct it therefore further on developing your risk appetite.
A story I like to tell is that of a friend of mine who introduced me to investing. It started off easy, with me investing 500K in his farm venture with the assurance of interest on the capital I gave him.
Lesson #1. Don’t lose money. Warren Buffet said that. When getting into that deal, make sure you are making money from it. A profit. That no matter what happened, whether the crops matured or died on my friend’s farm, I was going to make money. It wasn’t based on conditions of how well the farm did.
Lesson #2. Do your research! Understand what it is you are getting yourself into. What was the likelihood of my friend’s watermelons doing well at that farm? Had he been a farmer long? How was his yield before? Why did he need this large amount? Why couldn’t he get it elsewhere like a bank? Are there other investors involved? I remember asking so many questions it ended up being an interrogation. LOL.
Being a friend of mine of many many years, you would assume that I would just take his word for it and hand over the cash then pray he pays once my investment matured. No way!
Lesson #3. Always have it written down. It doesn’t matter whether you are investing 5K or 500K. Have that agreement- a contract written down. Everything should be stipulated and understood so that in the event things don’t turn out ok and the cops have to get involved, you have a piece of paper showing evidence. Of course we all pray it never gets to this, but such is the world we live in.
Lesson #4. Follow Up. I went for farm visits, and made calls to find out how things were going. I made sure I was top of mind. This helped me cast away doubt and sleep well at night. Haha!
After the harvest period had lapsed, my friend realized he had made a small loss but was still in a position to pay his investors- which he did plus interest. Later on in the year he approached me with yet another attractive offer, this time in real estate and I was able to invest a little bit more.
Lesson #5. Invest regularly. It really is the only way to develop that risk appetite. The more you do it, the better you get at it, with lessons learnt along the way. Will I lose money along the way? Perhaps. Actually I already have, twice on my own farming venture.
Lesson #6. Don’t let a small loss become large.Don’t keep losing money just to prove you are right. So far the losses I have had on my farm have been small and out of uncontrollable factors. (damn global warming!) Believe me when I say though, I have my eye on that. I once read somewhere that: “When all you’re left with is hope, get out.” Lol. So true.
What I think has worked for me is that I don’t put all my eggs in one basket. I mean I do want to invest, just not in one place.
Lesson #7. Diversify your investment. To boost your potential returns, invest according to your investor profile in different product types, geographical regions, asset classes and industry sectors. You win some, you lose some. So long as in the end, you don’t lose it all. That’s my principle. Diversifying has actually helped me increase my risk appetite because my hand is in many pies.
So start developing your risk appetite in all manner of areas. In investing, at the work place, even your life. Change how you normally do things and you will discover you have what it takes to get your paper chase up and running! Don’t fear failure, fear not trying.
I hope my story has been of help to you! Feel free to comment below 🙂
Love. Live. Learn.