In a previous post of mine, I wrote about how to invest and I majored on the passive/defensive method of investing but in this post I will be talking about the active/enterprising investing.
Image Source
The Active investor
It is really easy investing as a passive investor as you really do nothing but just allow your money work, it isn’t the same with the active investor but being an active/enterprising investor is different. It is about being present as well as your funds. It involves patience, discipline, willingness to learn, time and proper thinking.
I will be looking at people who are investing in the companies themselves instead of just buying a particular amount of shares and having no controlling power. Even as an active investor, I will still say the same thing, do not invest in a company that is doing exceedingly well in its stock price as well as exceedingly well in it revenue. You will be left to pay for a lot of things which might turn out to become a loss for you. The best thing to do is find a company with good revenue and structure but low stock price which will also reduce the company’s valuation and there you can invest your money since you are investing for the future and not the present (do not forget that future earnings are less reliable than what you as an investor see currently). If an active investor is willing to buy an undervalued company, they tend to pay less or close to nothing for fixed assets such as buildings, machines and other things. This will help as a good pivot since you will be coming as a savior to the company (Oh… the company’s Jesus is here!!!).
The investor should insist on a margin of safety which means the investor should be sure that the investment is really safe for investing. Is a company is worth 2/3 of its actual valuation, then you are still safe but if a company is prices at a higher figure than its stocks, then it should be avoided at all cost because the investor will be bearing the whole risk. Do not forget that the ratio of return than an investor should expect must be proportional to the risk that they are willing to invest but this isn’t always true but rather it is dependent on the effort put into finding a company with lower value and not based on price and value of negotiating a company with higher valuation.
You are going to be in control of a company you will be buying and not a passive investor, so getting a company with good valuation, the right team, future plans, growths, and scalability should be considered else, the investor will be spending more and gaining little or nothing as the company might end up not being profitable. Being an active investor is having control over the company affairs but being passive is owning a fraction of the company without being concerned with administration, so being an active investor is more time consuming.