Risk And Money In Business - The Rules
March 16, 2008
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Before I went into business myself, stockmarket investment was a hobby. I was successful at it because I did a vast amount of research and only invested in businesses that I understood. I also had a strict set of rules, which I barely ever deviated from. And on the couple of occasions that I did, I suffered financially.
I didn’t realise this at first, but these rules can and should be applied to your own business too. Here’s some of my favourite ones:
Stay Focused On The Complete Picture: Always remember that you can’t get things right all the time and not everything you do will be perfect. But don’t let small mistakes phase you - it’s the complete picture that matters.
Stockmarket Investment - The Complete Picture
I used to hold shares in 6 to 8 companies at a time. The law of averages dictated that a couple of these would do amazingly well, two would give average performance and two would do badly. When I had good reason to, I would sell poor performers at a loss. This didn’t bother me – I didn’t see it as a loss, so long as I was making an overall profit.
The Complete Picture of Your Business
You need to stay focused on the complete picture in business too. If part of your business or even a whole business that you own is doing badly – ask yourself these questions. 1) Is there a problem within the business that can be easily rectified to turn this business round? 2) Is the business suffering because of external factors affecting the market – eg. high fuel prices? If so, can I do anything about this and is it likely to be a long term problem? 3) Did I make a mistake? Is this thing ever likely to work, or would I be better ditching it and doing something else?
Don’t Throw Good Money After Bad
A friend once asked me if it bothered me having to sell poor performing shares at a loss and would I not prefer to wait and try to get my money back. This is a fatal attitude and the same applies to business as it does to stocks.
Don’t regard selling something which is losing money as a loss - even if it has already lost you money. If you do, you may begin to feel that you need to make that money back. But, the last way you’re going to do that is by holding on to something that sucks. You’d be far better off putting the money and effort into something else.
This rule applies to shares in particular companies and also to your own business. If you need to get rid of part of your business, or all of it, because it just isn’t going to work out, you should do it as quickly as possible.
Make Sure You Understand The Market You’re In
Make sure you understand the market you’re in whether you’re investing in shares or a business. And if you don’t understand it initially, make sure it’s something you’re going to be interested in learning about. You will need to understand what changes might affect the sector you’re in. And you’re going to have to keep your eye on the ball, so that you’re aware of any changes that may affect your business and that requires a lot of reading. If you don’t, you’ll suffer.
I once invested in an engineering company because the financials were good. The trouble was - I didn’t really understand engineering and I probably never will. The shares plummeted and I didn’t understand enough about the sector to realise the cause. But, companies that I had a good understanding and interest in did extremely well and I doubled and trebled my investment in a reasonably short space of time. (*NB - By a short space of time - I mean years not days. This type of investment is not a way to get rich quick and I would never recommend trying to do so).
Never Sell Anything Profitable To Raise Capital
If you want to raise cash to invest in something else - dump the bad shares, or the bad businesses. Obviously, they’re not going to be worth as much, but the important point to remember is you’re taking a lot of risk. If you keep the lemons you already have and sell your prize pig to invest in something else, then discover it’s a lemon too - all those lemons won’t make lemonade.
One of my most stupid mistakes was during a bear market. The lemons I held had plummeted to worthlessness and the average ones weren’t far behind. But, the prize pigs hadn’t fallen much at all, because I only invested in small companies. But, my ex-husband was struggling with his business and persuaded me to sell my best shares to help him out. This was a foolish move. The reason he was struggling was because he made no effort. And a few months later, he was back to square one and asking for more cash.
Remember That Stocks And Businesses Aren’t Babies
Try not to get too emotionally attached to particular shares you invest in, or your business. And don’t treat them like babies. Some people even call their business their baby and it makes me want to throw up. You simply can’t have the same emotional attachment to a business as you would a baby. And babies aren’t something you might grow to sell - at least not if you’re reasonably normal. But businesses are just things and if you become too attached to them, you’ll find it difficult to part with them when you need to.
Don’t Act On The Advice Of Others
You should never invest in shares because someone gave you a tip, or act on the advice of a stockbroker without doing your own research. And the same goes for business. Listen to advice by all means, but also do your own research so you understand what you’re getting into. The best advice in the world is worthless if you don’t really understand it.
These rules have worked for me, but they may not work for everyone. For example investing in 6-8 shares, or businesses at a time may not appeal to some people. And you do need to consider many factors - including your age. I acquired a huge amount of knowledge before investing in shares and I learned about business as I went along (doing the research first is better if you can).
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18 Responses to “Risk And Money In Business - The Rules”
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Hi Catherine,
Thanks for the article. I found your point of not treating the business like a baby pretty interesting.
I hadn’t really thought of that, not that I have been treating my business that way — but it is MY business, so there’s always been at least a BIT of pride that it’s my “baby” in that regard.
However, I’m glad you pointed out that perhaps one day I might sell the business, and of course, we don’t (usually) sell our child.
At this point, though, that’s the furthest thing from my mind.
Looking forward to the rest of the series.
Nez’s last blog post..Why Be Wary of Super Cheap Products
I’ve never traded stocks and shares, but I can see the parallels between that and the emotional attachment in a business.
And I’ve perhaps held on too long in the past when I should have let it go.
Ian Denny’s last blog post..Blog Authors - How To Get More Comments Per Visitor
Nez - I’m glad it was useful. And remember it’s always good to begin with an end in mind - so even if it seems a long way away, it’s good to think about a time when you might want to sell your business.
Ian - I think the main difference is that you don’t have to actually work in a business when you’re investing in shares. You’re not as closely involved, so it’s easier to avoid making emotional decisions. Also, you have the time to do a lot of research and keep yourself up to date because you’re not working in a business.
The only time I’ve made a bad emotional decision where shares were concerned was when I was feeling v down and I bought shares in Railtrack without enough research to cheer me up. It would have been a lot cheaper to buy a pair of shoes or a handbag!
Hi Catherine,
As always, more great business advice.
I agree we must educate ourselves and not depend on others for “what to do”. Too often you’ll hear someone say, “Well so-in-so told me this is what I should do”. Others always have their own motives for doing what they do, and sometimes others may steer you into the wrong directions because they want to see you fail.
Opinions are just that, opinions. In business, decisions need to be based on facts, market trends, research, and what works right for us.
BTW: Sounds like the ex thought you were a human ATM.
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I can see that. I wonder how emotional you’d get if you grew your business sufficiently large to float it on the stock market?
You see the big players who do this, sell out, and then later buy it back to give it another whirl. The Iceland guy springs to mind. And I’m sure Richard Branson has done that before with Virgin Records?
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Hi Barbara - thanks. That is so true - there are many reasons why it’s best to do your own research.
Yes - he definitely did think I was a human ATM. And I should have refused to give him the money. It was supposed to be a loan, but he refused to sign a loan agreement.
Hi Ian - I personally would be thinking great - how quickly can I sell out completely, but some people do get emotionally attached don’t they? I’ve read about those who hate being told what to do, once their business floats on the stockmarket.
I’m not sure about the Iceland guy. But, apparently, Branson bought back because the shares fell and he didn’t want to see people lose money. I think it was the actual market that went down in general - not his company. He has since sold Virgin records though and apparently he cried.
I’ve just remembered the name of the Iceland guy - it was Malcolm Walker. Remember the guy that at one time was alleged to have been involved in insider trading.
I read his story in a book of Liverpool-related entrepreneurs a while ago.
After the scandal Iceland stores took a big dip and their shares fell dramatically. He bought it back into private ownership and turned it again. With Kerry Katona fronting the adverts no less.
Apologies to US readers - this is a UK story full of intrigue and shenanigans!
Ian Denny’s last blog post..Blog Authors - How To Get More Comments Per Visitor
Hi Ian - you mean people actually bought more stuff after seeing the Iceland ads? Kerry Katona put me off shopping there ever again. And she’s been dropped from doing the ads: http://www.brandrepublic.com/News/775119/Kerry-Katona-dropped-Iceland-advertising/
The insider trading story does ring a bell. I’ll check it out.
I’m not surprised she’s been dropped!
Regardless of any increases in sales, a brand can be damaged by association.
I’m not professing to understand these things - and I suspect nobody really does - but because she’s been in the papers virtually every week for the last year with her lifestyle challenges, maybe the publicity has kept Iceland in people’s mind and they’ve shopped there?
I’m not au fait with Iceland’s current performance, but they did turn it around.
As for Ms Katona, there are some comparisons with Britney Spears, but on a smaller scale - famous and rich very young.
I think Britney was younger and her problems arguably deeper, but Ms Katona appears to be on a similar path with reality programmes filming her now because she needs the cash to fund whatever it is she is doing with her life.
Ian Denny’s last blog post..Blog Authors - How To Get More Comments Per Visitor
@ Gary - This is a business blog - I share my mistakes to help others. Although I realise that you probably don’t actually grasp the concept of helping others.
Re: Child maintenance - you’ve never paid a penny in 3 and a half years, but you obviously don’t know when to stop lying.
Re: Theft - believe it or not, I do see taking over £1000 a week (over $2000) of money I earned, out of a bank account that you were still able to access, thanks to the incompetence of the bank - as theft.
Also, stealing from my purse over several weeks, then claiming that you were trying to help me save money was really low.
But I agree - you should move on - I wish you would. Quit the hang up calls and sticking condoms on my car. And realise - this is not a channel for you to speak to me. Just as I changed the locks on my house to get rid of you, and I can also put down the phone on you - I can delete your comments if I want. Bye Bye.
Update - But since you didn’t listen I put you in the spam folder and banned you instead. Have a nice life.
Hi Ian - I guess that’s a case of no publicity being bad publicity. Maybe they would have been better to keep her?
Agreed - Britney is in a similar position. It is a shame - it seems they have both become victims of their own success.
Cath
This is an interesting article that makes me wish I had money to invest in stocks! But for the moment, a mortgage and saving for a much needed family holiday will suffice.
Re. your business is not your baby comparison, I have heard this many times of course and it makes sense, but let me ask you this. If your business revolves around a great passion of yours - your life purpose if you will - then it’s going to be night impossible not to get emotionally attached, isn’t it?
Doesn’t the attachment help propel the success? Keen to hear your thoughts on this.
Kelly
Kelly Rigby@ SHE-POWER’s last blog post..SHE-POWER Fiction: Dinner Time Blues
Hi Kelly - that’s a tough question. I suppose it would depend what your life purpose is. And I know you want to write novels, which is definitely different to building a business that you would want to sell.
I think few authors would want to sell all rights to their books, as it would be more profitable to continue to collect royalties from them, if they remain in print.
And there is definitely going to be a more emotional attachment than there would with the average business, as it is normally you and you alone working on the novel for hours on end. And I think there’s definitely an attachment to the characters too - because they sometimes become so alive that they actually feel like real people.
I think the attachment will help propel success, so long as you also remain realistic and open to suggestions. But sometimes it can have the opposite effect too. You’re always going to get writers who fall in love with their work so much that they refuse to edit properly and make essential changes. And you’ll also get others who think their work is so great that they don’t need to market it.
this is how i see it my dad (gary) has never seen me and even when it was my birthday he came right at the end and that was two years ago but it got worse when ever we did see him (about once a year if i’m lucky) he would tell me and my brother that he was paying the child support and it must have got lost in the post it was a lie.when i went to graeme’s party (my nana’s husband) we were having a great time and my dad was there but when my mum came to pick us up because they started saying that my aunty wouldn’t give us a lift home when she told me she would after that.so my mum came (catherine) to pick us up and when me and my brother got in the car it all started my dad and paula started mouthing off to my mum trying to annoy her.
My dad somtimes (most of the time) does stunt to try and make him look good just look at the comments he left and he makes loads of hang up calls just to look good but it’s not just my dad it’s paula she’s the one who does some of the is aswell oh and incase you don’t know who paula is she’s the person who ruined my life and probably alot of peoples lives she has a twin so that makes her twice as ugly you might aswell replace her with a pig you wouldn’t be able to tell the diffrence thats what my idea was anyway there getting married my dad and paula so just to be funny i said this to my mum.Before they get married dress a pig up in her wedding dress and my dad wouldn’t be able to tell the diffrence infact no one would.
this is quite a long comment so i’m gonna make it shorter by finishing it……………………..NOW!
Hi Jessica - you should not have to respond to comments from your dad on here. But he shouldn’t even be commenting to begin with and he can’t anymore as I’ve banned him.
I am sad that you think your life is ruined because Paula doesn’t want your dad to see you. But he is capable of making choices too and it’s not your fault if he makes the wrong ones. It is he who is the loser at the end of the day.
Jessica your life is far from ruined - it has only just begun. You are beautiful and intelligent and you can be anything you want to be. And many people love you - especially me. Mum xxx
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