Asset management: are you doing it right?

There comes a time for every successful entrepreneur when they need to take a serious interest in asset management. Because interest rates are low and inflation is relatively high, cash savings depreciate every month. The answer is to invest surplus money into a product that returns a larger investment. But caution is required - investment errors can be costly.

What is asset management?

In its simplest form, asset management is the process of actively managing all wealth with the object of either increasing the value of an investment or providing a regular income, or both. Although most of the time asset management involves purchasing shares on the stock market, it also includes investing in property, art, businesses, and currency.

Asset managers will first determine the main goals of the investor and build an investment portfolio that is designed to meet targets. For example, if an investor requires a steady income, money will be invested in high yield stocks that pay out large dividend payments. Investing in the property market can also yield good returns. Investors who have a good income already are often more interested in building the value of their portfolio than in dividend yields. To achieve this, an asset manager will invest in companies that are focused on growth; the aim is to purchase shares at a low price and sell when prices have peaked.

Successful people

It is possible to learn a lot from people who have managed their assets successfully. Every fund manager has a slightly different strategy and approach to managing their investments and managing risk and success stories can reveal strategies that have worked.

Benjamin Graham has been described as the “father of security analysis” and is one of the most successful mutual fund managers in the world. He practised deep value investing, one of the best-known stock-picking methods. The trick is simply to find companies that are trading at a price below their current value. The theory is that, in time, the market will adjust to match the real value of the companies; at which point it is time to sell the stock to realise the profit.

Another well-respected asset manager is Sir John Templeton. Forbes described him as the "dean of global investing” and he received a knighthood for his groundbreaking work in investment management. He describes his strategy as choosing stocks that have reached the "point of maximum pessimism". This simply means investing when all others have given up hope. Of course, there is risk involved but, as always, risk can be managed.

As well as reading about successful investors in magazines or online, it is also a good idea to follow some through social media networks. Many asset managers drop hints and tips about what they are investing in and why. For example, investors who follow Jezri Mohideen will learn about some of the trends in asset management this year and receive great advice about financial engineering. Many fund management companies also have Twitter pages that provide the latest updates from the investment markets.

Managing assets successfully is, of course, a highly-skilled task and asset management is part art and part science. The best managers use a combination of financial analysis and market research to determine which companies will be performing well in the future and which ones are showing risk of decline. However, on top of these skills, many asset managers work on an educated hunch. Sometimes risks are taken with stocks in which no other investor is showing an interest. This does not always work but, if that risk is managed by balancing safer investments against it, high gains can be achieved. The only real rule of investing is never to invest money that you cannot afford to lose.

 

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Pete White Pete White

Love Shrewsbury editor and chief developer at The Web Orchard, find out more on petejwhite.com

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