Successful Investing – Helping Investors Avoid Common Investment Mistakes | Investing

The Top Mistakes made by InvestorsIn my dozen plus years of advising individuals and businesses I have found a number of common mistakes that have derailed even the best laid financial plans. I thought by sharing them I might be able to help others sidestep the pitfalls and the negative impact they can have on your portfolio and long-term financial plans.1. Failing to establish a time horizon and investing accordingly -If you have expenses that need to be funded in 3 years or less, you should not be investing the cash for them in the stock market or other risky investments. These monies should be carved out of your investment portfolio (the money earmarked for long-term investing) and invested appropriately in liquid assets such as money market funds or term-certain fixed income offerings. If the money is not going to be needed for 3 years or more, an investment plan should be established based upon specific a time horizon and risk tolerance for these funds.2. Failing to thoroughly diversify your portfolio -Many investors know about the concept of diversification and think that by owning different investments, they are diversified. Diversification of an investment portfolio makes good sense on an intuitive level. However, it wasn’t until Harry Markowitz published his model of portfolio selection that this concept became a formalized part of sound investment practice and formed the basis of today’s Modern Portfolio Theory. Beyond this basic concept of diversification, the key to Markowitz’s premise is the revelation that the risk of any investment can be reduced and/or performance increased by forming a portfolio of diverse and non-correlated assets. That is, it is important not just to seek a diversity of asset types, but also to seek assets that have low or near-zero correlations to one another. It’s not about owning different investments; it’s about owning different, non-correlated investments.3. Letting potential tax implications rule your investment decisions – Many investors delay selling an investment that has done well regardless of how good or bad the future looks for the holding. Their response is, “I will have to pay taxes if I sell.” By not selling, they set themselves up for not having to pay taxes at all – usually because the investment starts on a decline and their concern switches from “having to pay taxes” to one of “hoping for a turnaround.” Don’t be afraid to take some profits off the table. While taxes are an unpleasant result of investing, I prefer to look at them as a positive sign as it indicates you are making money and your investment plan is working.


4. Buying a stock based upon a “hot tip” -Too many investors listen to a friend’s advice because he or she always seems to have the next “great” money making idea. They don’t take the time to assess the idea personally and jump in because it’s only a few thousand dollars they are investing. Unfortunately this is not investing – it’s gambling. If you want to gamble, go to Vegas and at least get free drinks, dinner, a show and a room for the risks you are taking. Any investment that is being considered for your portfolio should be thoroughly researched and have passed a comprehensive financial screening scrutiny.5. Attempting to time the market -Waiting an extra day, week, or month to try and buy in at the “right price” just doesn’t work. No one can predict the future. If they could they most likely wouldn’t be sharing this knowledge with you for free. Successful investors use time, patience and a disciplined approach to increase the likelihood of maximizing their investment returns – not trying to time the market. If you have done the research and the investment is sound and meets your criteria then buy it, regardless of timing.6. Failing to regularly reevaluate your investments -Over time all investment styles, strategies and types fall out of favor. So, like timing the market, it becomes virtually impossible to know what is going to be “hot” in the next bull market and what isn’t. For this reason it is always prudent to stay up-to-date on your investments to insure they are still the same investment that you originally purchased (segment drift and manager changes can be one reason they may have changed). If your investments consist solely of mutual funds then an annual review is a good place to start.7. Basing investment decisions on emotion -Maybe the stock market is going through a bad time because of a short-term geo-political or economic event. Stay calm and make an educated, well thought out decisions about what, if anything, to do. Assess whether the event will affect the economy long-term or if it’s just a short-term blip. The best move is often no move at all. If it is a short term incident, many times the smart, prudent investor will make additional investments because the current decline provides them with an excellent buying opportunity. The key to successful investing is to have a disciplined strategy and to stick with it.8. Cashing out gains and dividends rather than reinvesting -Once you’ve realized gains or had distributions and dividends paid out, insure they are reinvested back into your portfolio. If you pull out your capital gains, dividends and interest, your money won’t compound as quickly, thereby leaving you with a smaller chunk of change down the line. Letting your investments compound is one of the major tenets of successful investing.9. Owning too much employer stock -Many people get over-weighted in employer stock because of options and stock purchase plans made available in today’s competitive compensation packages. While these are great supplements to their annual salary they can put an employee in a position of having too much money invested in their employer’s stock. Additionally, it is quite common for people to invest in “what they know” and what do you know better than the company you work for? To compound the problem many people will add more employer stock to their 401k holdings and individual brokerage accounts. Not only does this create a diversification problem in their portfolio but it also subjects them to excessive single stock risk. A good rule of thumb to follow is to insure that no more than 5-10% of your entire investment portfolio is in any one single stock. If you find yourself in this situation the importance of creating a well thought out reduction strategy cannot be overstated.10. Following the herd -The most successful of all investors are moving in the opposite direction of what everyone else is doing. They buy when most are selling and sell when everyone else is buying. By following this simple plan you can preserve your capital and potentially sidestep the next bubble (can anyone remember real estate, internet stocks, and technology growth funds?).


11. Not investing at all – Somehow in today’s society that Mocha Cappuccino Latte seems to take precedence over saving for the long-term. We are a society who wishes to satisfy the “here and now” rather than the securing our future. The important fact here is that those two are not mutually exclusive. In fact, BALANCE is the key in any long-term endeavor, but by always keeping an eye on the end goal you can make sure it is not out of mind while satiating the here and now.12. Investing without a plan -Investing without a plan and lacking the discipline to follow it is a sure way to lower your chances of success. The chances of obtaining any long term goal can be greatly enhanced by creating a strategy, following it and regularly reviewing it frequently enough so it reflects any changes that have taken place since implementation. Many investors start off with a small amount of money and start putting it to work without a plan. As time progresses they find they have a mish-mash of investments in their portfolio with no clear strategy or direction. It’s never too early to invest but it’s even better to invest early with a plan.13. Taking too little risk -Some people don’t want to take any risk and cannot stand the volatility involved with risky investments. While it may seem like you are keeping your money safe and secure by not taking risk, it is more than likely you are not because of inflation. If your time horizon is greater than 5 years it is recommended that you have no less than 25-30% in growth investments (i.e. stocks) in your portfolio to ward off the effects of inflation. The actual percentage to own is dependent upon many factors including but not limited to age, time horizon before money is needed, current financial situation, etc. A good general rule of thumb to use as a starting point for the percentage of equity you may include in your portfolio is “120 – your age.”

The Protection Of Foreign Investments In Mozambique As Strategy For Development – Part Two | Investing

The regional context:Mozambique’s development program has hardly been affected by the slowdown in global growth and world trade over the past two years because its growth has been driven by strong internal investment in new export-oriented projects. Over the next few years, it has many opportunities to develop its metals industries for export and its ports and rail facilities to provide services for the regional market in southern Africa. In that respect, a resolution to the current problems in neighboring Zimbabwe would help Mozambique to develop those regional transportation facilities that could support the Zimbabwe economy.Like any African country, Mozambique’s challenges go deeper than absolute poverty, low income, falling trade shares, low savings and slow growth! They also include high inequality, uneven access to resources, social exclusion, and insecurity.The environment for investment protection in MozambiqueThe policy strategy currently pursued by Mozambique is explicitly intended to improve conditions for foreign direct investment (FDI). However, the environment for foreign investments protection in Mozambique is still inadequate to attract high quality and efficiency-seeking investments and the incentive framework continues to suffer from a number of deficiencies.An investor in Mozambique is of course faced with many of the bureaucratic and infrastructural hurdles usually encountered in developing countries. One major bottleneck for many investors, especially the smaller ones, is the country’s limited administrative capacity. Administrative handling of queries and requests often reveals the deep roots socialism has put down in public-sector culture. With external donor assistance, the Government has now undertaken various red-tape analyses to identify unnecessary administrative difficulties and the ways in which they might be solved.The increasing importance of FDI in MozambiqueMozambique is a good example of a least developed country in which the basic constraints on development are being gradually removed by a decisive and reform-minded Government which commands popular support. The sustainability of these efforts depends to a large extent on the tangible results they produce in the main areas of the economy. The Government is aware of this and in general committed to continuing on its current path. It is also aware that private-sector participation and, in particular, foreign direct investment with its unique combination of tangible and intangible assets, is indispensable to economic growth. In sum, Mozambique is developing as a major investment location in Africa, as shown in the following paragraph.The importance of FDI in the SADC region and Mozambique is confirmed by the following facts:- Global flows of foreign direct investment reached a record US$ 1.3 trillion in 2004- Mergers and acquisitions accounted for 85% of this amount- Developing countries in total received about US$ 240 billion- Africa received US$ 13 billion, of which about US$ 5 billion flowed into the 14 SADC countries- Of the US$ 5.5 billion, Mozambique received US$ 1.5 billion, SA – US$ 760 million, Angola – US$ 735 million- South Africa is the largest source of FDI in the SADC, accounting for up to 43% of Africa’s US$1.3 billion outflows, and accounting for up to 85% of total FDI in all other SADC countries in 2000.- Large South African companies, long denied the opportunity to invest substantially offshore due to exchange controls, have increasingly sought out opportunities for expansion in SADC, Africa and beyond.Experience of investment protection in Mozambique


The legal and regulatory framework experienceIn 1999, a legislation providing for the establishment and operation of industrial free zones (Export Processing Zones EPZs). New legislations were introduced to take into account the special status of agricultural, hotel, tourism, regional rapid Development Zones, mining and petroleum investments, including their fiscal benefits. Additional investment incentives were adopted by law in 2003, allowing qualifying firms in particular sectors, including garments, chemicals, engineering, food and printing, to import duty free.Mozambique has established itself in recent years as one of the leading FDI recipient countries in Eastern and Southern Africa. In 1997, FDI amounted to US $ 64 millions, and FDI inflows were catapulted to US $ 213 millions in 1998, and to US $382 million in 1999, with the two mega projects of Mozal Aluminum smelter and the Maputo – Witbank toll-road. After a decline in 2000, FDI rebounded again in 2001 to $255 million and to $ 380 in 2002. In 2004, it is reported an increase up to US $ 1,8 billions dollars.In 2004, Foreign Investments in Mozambique were estimated at US $ 1,800 millions and positioned the country as the first recipient in the Southern African region. Half of the investments came from South Africa alone. Foreign direct investment (FDI) in Mozambique – on approval basis – reached a cumulative total of $ 1.6 billion between 1985 and 2000. The main sources of FDI were the Republic of South Africa with 28 per cent of the total volume. The United Kingdom with 22 per cent and Portugal with 19 per cent. Other leading investor countries are Japan, Mauritius and the United States. It is worth noting that investors from non traditional source economies like Japan, France, Hong Kong (China), United States, Malaysia and Mauritius have participated in key areas like banking, textiles, steel and sugar over the past five years.South African investments in Mozambique are fairly diversified with the greater influx being directed to partnerships in major projects, but there are also investments in small and medium-scale projects, especially in industry and tourism. The United Kingdom has now moved to the second position as a source of FDI on account of Billion’s participation in MOZAL Project (an Aluminum melting mega project).All these considerable investments were made despite major impediments, which still limit access to business development in Mozambique. This suggests that FDI could even be more dynamic if some key issues with the investment climate were resolves. These include land ownership issues, the competitive policies and laws for foreigners. According to a recent USAID report that despite significant improvements.Investment opportunities are still widely untappedWith a mostly poor population of 19 million, the Mozambican market is small in itself. However, its integration into the Southern African Development Community (SADC) offers investors easier access to the main market in southern Africa: South Africa and the other 12 member countries.Agriculture (cashews, cotton, tobacco, sugar and other cash crops) and fishing and aqua-culture (prawns and shrimp) are the backbone of the Mozambican economy. Investment opportunities are also available in the related agro-processing industries, especially in the southern region. The liberal economic reforms pursued by the Government, the almost complete privatization of formerly state-owned enterprises, and a variety of generous incentive schemes have laid the ground for profitable investment in a number of areas: cash crops, manufacturing, financial services, export-processing (cashews, aluminium), etc.The traditional Mozambican role of providing its eastern and southern hinterland with access to seaports has given transport (rail, road, ports) and related services a central role in the economy, as illustrated by the Maputo, Beira and Nacala corridors. Their further development now depends heavily on private – and especially foreign – investment. The country’s location, its abundant endowment of renewable energy (e.g. the Cahora Bassa project), its still unexploited mineral wealth and, last but not least, its market-oriented policies have attracted a number of large-scale manufacturing and mineral-exploration projects to Mozambique in recent years.The most prominent of these is the Mozambique Aluminium smelter project (MOZAL), which has made an initial investment of $1.3 billion. More such “mega-projects” are about to materialize and most of them are expected to offer substantial opportunities to a variety of suppliers. An example is furnished by the activities based in the Beluluane industrial park (an export-processing zone), located close to the MOZAL complex, south of Maputo.Tourism, currently dominated by South African tour operators, is another sector with very considerable potential. Even with the existing infrastructure constraints (which investment could help remove), there are opportunities in such areas as game, adventure and coastal resorts.Current constraints to the promotion and protection of FDIDespite considerable efforts to modernize the investment legal, regulatory and institutional framework, Mozambique still has some legal and administrative barriers which hamper investment development. Article 109 of the Constitution states that land ownership is completely vested in the state, and that it cannot be sold or mortgaged. The land legislation (Law no 19/97 of 1 October and Decree no. 66/98 of 8 December 1998) both enhance the land ownership entrenched in the constitution.The legislation on labour and employment of foreigners (Decree No. 57/2003 of 24 December 2003 on Employment of foreigners) is among issues cited as a serious barrier to foreign investments. Other problems most commonly referred to are red tape and corruption, lack of adequate competition laws, the existing legal limitations impose on foreign ownership of company shares, stocks in the financial markets and the labour requirements for nationals which do not allow the dismissal of employees even in case of gross misconduct or theft. A new labour law was adopted by the Parliament, and published, its provisions will become applicable in 2007. A tribunal in charge of labour disputes settlement has been established.Identified specific constraints to the promotion of FDI in Mozambique include the following aspectso Small size of the regional market, and this is compounded by relatively high transport costs of getting products to lucrative markets in the US and Western Europeo Incentive and competition measures,o Weak judicial institutionso Labour laws and lack of equitable dispute settlement compulsory measureso Red tape, crime and Corruptiono Infrastructure Weaknesseso Corporate Governance Issueso Inadequate market-friendly reforms (pace of privatization, reform of foreign ownership rules and rules governing the repatriation of profits)o Climate, natural disasters – drought, floods, famine, etco HIV/Aids pandemic : one out of seven people is HIV positive (according to Health Ministry and WHO sources)Urgent reforms are needed to facilitate fast tracking of industrial development- Legal and regulatory reform to remove all remaining bottlenecks faced by foreign investors.- Relaxation of investment restrictions.


- Reform of the financial institutions, markets and services with reference to international standards. Liberalization of exchanges and financial transactions, with increased controls and supervisory technology.- Establishment of effective and well-capacitated institutions e.g. one-stop shops for investors- Infrastructure upgrade and maintenance – public investment will ‘crowd-in’ private investment.- Rural development – incentives to businesses to locate in rural ‘growth’ areas – spreading development, and curbing the rural urban migration patterns.- Guided investment’ – state targeted interventions in specific industries, offering generous loans, tax and operating concessions, and tariff protection in the early stages.- Massive investment by the state in research and development (R&D).- Investment strategy to develop rural industries.Additional measures to promote the flow of foreign direct investment should include: through government public works programs, increasing profit incentives for rural factories establishing rural-urban-global supply chains, reverse engineering tactics, investment in Research &Development, relaxation of foreign ownership and repatriation laws.Concluding remarksMozambique has, over the last decade, demonstrated considerable efforts to create adequate legal and regulatory frameworks for the protection of foreign direct investments. However there remain serious impediments which still affect negatively the flow of foreign investments. Inconsistent policies and inadequate host country operational measures (HCOMs) are some of the challenges which call for more reforms.There is need for increased awareness within the Government of Mozambique and public institutions on key issues related to the promotion and protection of foreign investments. The point is: foreign investors want to gain market access, have their investments protected and be free to operate in a manner of their choosing. Host countries want to develop services and infrastructure, meet local needs, produce exportable goods and improve locally available technology. The interest of foreign investors and host governments can be harmonized if the investment meets both sets of agendas. This can be done if investors decide on the viability of specific projects and the host governments decide on the priority sectors and conditions of FDI consistent with their economic and development objectives.As in the case of Mauritius, this should be a credible development program backed by credible policy framework conducive to long-term economic and social stability. With such policies, the country is more likely to have the capacity over time to service the repatriation of profits, provide a skilled and healthy labour force, and develop suitable infrastructure. Financial institutions, markets and services should be reformed with reference to international standards.Finally, this program should cover the need for convergent bilateral and multilateral investment and trading arrangements with countries members of SADC to avoid trade and investment deflection and diversion. This should also go along way towards removing administrative and fiscal barriers to the promotion of investments. There is also need to adopt appropriate legal, regulatory and institutional frameworks to ensure more flows of high performance foreign direct