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Article Title:
Making the Big Bet - Investing for Wealth

Article Description:
Unless you are a full-time investor or otherwise possess a keen 
sense for investments, it is likely that you follow the general, 
solid investment advice...

Additional Article Information:
1084 Words; formatted to 65 Characters per Line
Distribution Date and Time: Thu Mar 23 16:50:25 EST 2006

Written By:     Shri V. Srikanth
Copyright:      2006
Contact Email:  mailto:[EMAIL PROTECTED]

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Making the Big Bet - Investing for Wealth
Copyright © 2006 Shri V. Srikanth
Character & Wealth

Unless you are a full-time investor or otherwise possess a keen 
sense for investments, it is likely that you follow the general, 
solid investment advice of:

 * Diversify your investments

 * Invest for the long term

One cannot fault that advice, for it takes care of the two big 
issues with investing:

1. Risk - which is reduced by diversifying your investments, 

2. Time for serious growth - which the long term horizon 

Betting Big

Wealth oriented investors, such as Warren Buffett, however, are 
of the opinion that you should put all your eggs in one basket, 
and "watch that basket carefully".

Now, that may be possible for a full-time investor like Warren, 
but what about the rest of us who have other things to worry 
about, like our careers and perhaps a second-income business? 
Is there anything that we can learn from the advice?

There is an essential truth about investing that Warren Buffett 
points to, and that other wealth oriented investors have 
indicated, and that is:

"In order to become seriously rich through investing, you have 
to bet big".

For example, if you invest $10,000 in a single investment that 
grows 10 X (i.e. multiplies in value by 10), you will have 
$100,000 at the end of the stock's bull run. If you however, 
spread that investment across 5 stocks at $2000 each, your 
portfolio may end up looking something like:

 * Investment 1 (The Star Investment) : $2000 X 10 = $20,000

 * Investment 2 (Good Investment) : $2000 X 2 = $4000

 * Investment 3 (Barely There) : $2000 X 1.05 = $2100

 * Investment 4 (Small Loss) : $2000 X .95 = $1900

 * Investment 5 (large loss/cut early) : $2000 X 0.8 = $1600

Total Value: $29,600

The difference - a whopping $81,400!

All this is assuming of course that you employ good discipline 
and keep your losses small and let your winners run.

At the end of this run, you are now operating either from a base 
of $100,000 or a base of $29,600. The difference is obvious and 
will only compound over time. The million dollar mark is well 
within the reach of the $100,000 net-worth person, while the 
$29,600 person has to find several solid investments to get 

But hasn't the risk for the single investment person increased 

Truth is, risk increases in proportion to the investor's level of 
ignorance about an investment, as opposed to the nature of the 
investment. True wealth investors are far more conservative, and 
build in a far larger margin of safety into their investments 
than those who invest without understanding.

"Watching the nest egg carefully" implies knowing your investment 
very well - and knowing when to hold and when to fold. In such 
circumstances, the single investment is not risky anymore.

Finding The Great Investments - With Help

There is help out there for finding great investments - use it.

One of the best forms of help is with expert investment 
newsletters, where the editors help you find investments that are 
frequently likely to double or more, and in some cases, have the 
"home-run" quality of multiplying by a factor of ten.

Sure, no one is right all the time, but if you follow the careful 
discipline of cutting your losses and letting your winners run, 
then overall, you will be far ahead of the field. And what's 
more, solid ideas will be fed to you in a steady stream on an 
ongoing basis - pointing you towards one bull market after the 
next - often getting you in on the ground floor.

A second fertile source is solid financial advisors. Note that 
any financial advisor can put you in ordinary mutual funds 
(especially into those from where they get their commission), but 
it is the rare advisor (and they are out there) who will put you 
into areas where your returns are much higher and which they 
themselves understand very well.

Both of these sources are a short-cut to getting great investment 
ideas to allow you to invest for wealth.

Maximizing Returns

Two simple concepts will help you maximize your returns through 
these great investment ideas:

 * Set Target Allocation for each of your investments, building 
   towards your target as the stock story begins to work in your 

 * Cut your losses, and let your winners run

The first concept simply says that before you buy any stock, you 
should know how much money you want to actually allocate to that 
investment. Then begin purchasing shares with 25% to 50% of that 
final target amount. As the stock begins to rise in value in 
accordance with your expectations (this is called market 
validation - and is the only validation that counts), you buy 
more shares and build to your final position.

The second concept says that if a stock is not working in your 
favor, cut it loose. You can always purchase it later if it seems 
like the original story will eventually work out - but more than 
likely, you missed something that the market is seeing. On the 
flip side, when a stock is performing well, it means your story 
is working out. Let it run - this is where the big money will be 

A final third concept that can be added to the above is:

 * Sell all the way to the top

That is, as the stock doubles, and triples - begin pulling your 
initial investment out, and then some of the profits, and then 
some more. Once your initial investment has been recovered, you 
are only playing with "house money". Continue following the stock 
and on further rise, start taking some of the profits off the 

Of course, make sure that you have some investment in that stock 
remaining as it enters its final run. This is where a lot of the 
profit is actually made - but the markets are always tricky and 
you may not have that final blow off. Consider yourself lucky if 
you can get out of an investment within 20% of its eventual peak 
(known only in hindsight). But well before your investment 
reaches its final run, you should have gotten substantial profits 
off of the table and into your kitty.

With this stock run complete, look for a new one, now with your 
larger asset base - and repeat!

Done properly, you only need 3-4 good bull runs in different 
areas of the economy to build you serious wealth!

Shri V. Srikanth is co-founder and editor at Character & Wealth, 
an online community of career professionals working towards total
financial freedom in under ten years. Get your FREE membership 
to this community at



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