Passive Investing: What You Don't Know, What You Need to Know and What You Thought You Knew But Don't.

In the few years I've been an entrepreneur I've been each of the three at some point: 

1. Recipient of a passive investment 
2. Channel for a passive investment 
3. Passive investor 

And interestingly enough, currently, all three. 

Having had a chance to be all three I've seen a knowledge-vacuum that exists when it comes to 'beginner passive investing and investors'. The largest driver of this shortfall has to be misconceptions of what passive investing truly is, and it is in this blog post that I wish to address these misconceptions by giving guiding principles that can turn any beginner into a professional. 

These principles are scalable and my own. They've worked for me and hope they can work for you. 

1. Objectives matter. If you really want to understand the value of investing study WHY people invest...and "to make money" isn't sufficient enough. By 'why', I'm referring to the reason that person chose that particular investment option. Some people invest to make a short profit. Others invest to have collateral to use to seek alternative funding for business ventures. Others invest in businesses they share a vision and passion for. But what do these all have in common, an objective that's driving their investing choice much more in-depth than merely profit (a.k.a. making money). You need to have an objective more detailed and well thought-through in order to determine the value of your investment. 


2. Data is greater than hype. Recently in Rwanda, the listing of Crystal Telecom (a holding company being used to sell Crystal Ventures' 20% shareholding in MTN) has been the talk in and around (even beyond) the investment community. It is dubbed as a "MUST-BUY" but there's only one issue. It's an investment in a holding company with one single holding, a holding that doesn't even try marry the valuation given to it by this listing. Unlike investing in a Berkshire Hathaway or a Pershing Square, this holding company isn't being used to fund the acquisition of other profitable businesses. The capital raised through the selling of the shares is going to be given to the previous shareholders with no value left in the company, apart from 20% of MTN Rwanda, to take care of operational costs. With a market capitalisation for Crystal Telecom of approximately $39million one would ask whether MTN Rwanda's business prospects are correctly valued when put at $195million.

BUT...

this principle is highly dependant on the first principle:

When investing for the long-term, DATA IS GREATER THAN HYPE.

When investing for the short-term, HYPE IS JUST AS IMPORTANT AS DATA.

But the underlying factor here is data is sought, and it is data that will help you make the right investment based on your investment objectives.


3. There is a goose and her name is Cyclical. The goose that lays golden eggs comes once a year...and at will too. Either you understand that and keep putting out food for her or you risk angering her and missing her altogether. I'm sure you're wondering what in heavens name I'm going on about. Well, firstly, I haven't gone crazy and secondly, investing is a win-lose game. It is highly cyclical so the wins and losses, if done right, even out into a nice steady return on your investment. Don't let one bad investment discourage you and never put all your eggs in one basket. 

Diversify your investment portfolio; 

invest in a piece of land, 
buy some equity in a start-up, 
buy some publicly traded stock, 
buy some treasury bonds, 
deposit some in a fixed deposit account
invest through a private equity or hedge fund.
All this is done to reduce your exposure to risk.


With that said, with these three guiding principles that will help you get your foot in the door and actually stay in the room when it comes to investing.

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