#84 - Enron - What to learn? (Watt Thoughts)
In recent months we have watched the value of Enron and Global Crossing basically disappear. We have heard the reports of people losing all their retirement or life savings. We have received lots of advice on ways to not let this happen to us.
Prior to the collapse of Enron did you hear people say how they might lose in it? I doubt it. More than likely up until about a year ago, most investors were celebrating how much they were making in Enron. What this reflects is the risks and rewards of certain investing techniques.
When you make investments, you must look at the risks and the rewards. Too many people look only at the rewards. However if you are going to get high returns on your stock you run much higher risks of losing your investment. If you do low risk investing, you will get low returns.
There have been many recommendations recently that people should not heavily invest in the company they work for or in a single company or in a single type of stock. If you want a reasonable return with a minimal risk to your money, this is fine. But is it what you want?
If your goal is to make the maximum amount possible, then the preceding advice is not for you. Have you thought about Bill Gates or Sam Walton or employees of them that you have heard made so much money thru their companies? Have you wondered why Paul Allen is not as rich as Bill Gates? Paul diversified, Bill did not.Bill and Sam and their employees did not get rich using a diversified approach. Their investments were entirely or nearly so in their company. The companies grew fantastically, and so did their investments. So if your goal is to do better than average, this is your approach. However be aware of the risks. If Microsoft goes belly up, so does Bill gates. All those Wal-Mart employees who have made a fortune on their Wal-Mart must remember that Wal-mart can fall like K-Mart.
Know the industry and companies you invest in. Know your risks. Choose how you are investing, whether long or short term. If you choose to heavily invest in one sector or company, remember your risks. And if you lose it, realize what the chance was that you took, and come back and try again. So choose where you want to go and what the risks are to get there. If there is little risk or no risk, there is little reward, but if there is a high risk, and you survive, the rewards are great.
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