There is a lesson or two
that investors can learn from the ant world. The ant and human
being are the only two creatures on earth that raise a farm and move around
with that farm. There is a symbiotic, or should I say, a reciprocating
relationship between the ants and the mealy bug. Mealy bugs produce honey dew
from its rear that provides sustenance for the ant to supplement its other food
supply. The honey dew is akin to the dividend payment of a company that it
distributes over the life of its existence. In a similar way, the mealy bug
produces honey dew over the life of its existence, but it is better able to do
so successfully with the aid of the ant community.
The ant community provides
the protective moat that defends the mealy bug in exchange for the honey dew
produced by the mealy bug and also protect it from its natural predator the
ladybeettle. The ant community enjoys the benefits derived from the mealy bug
and so they protect the mealy bug at all cost. The mealy bug is capital to the
ant community and the loss of this capital will mean no honey dew to supplement
the ant food supply.
Ant Farming Mealy Bug videos:
As an investor, loss of capital can cause
serious damage to your portfolio holding. Your investment strategy must have
some protective defense mechanism to cope with and prevent this loss of capital
in the same way as the ant to their mealy bug.
A margin of safety is a good protective defense
mechanism to mitigate downside fluctuation. In addition to the margin of safety,
a gradual concentration of an asset acquisition when buying is desirable, since
market volatility and price fluctuation will deliver the benefit of acquiring more
of the said asset at lower prices. The lower price paid will result in reduction
in per unit cost hence bringing down the average cost per unit on the total
investment. Price fluctuation is a feature of all markets and a lower cost will
always have some impact on return on capital. The need to protect capital
cannot be overstated. Rich people do two things well i.e. make wealth and keep it.
It is as simple as that.. I cannot recall ever seeing a 1 800 LOSS OF CAPITAL hotline
anywhere. It may take a long time for you to recover from permanent loss of
capital should you need counsel since there is no hotline waiting with someone on
the other end for you to cry to.
So let us get to the top
four
(4) gifts;
1. Buy Dividend Paying Asset
2. Buy Asset with Solid Economic Defense
(MOAT)
3. Buy Asset Class with
Symbiotic/Reciprocal Relationship (Economic lattice) and
4. Buy Asset you Fully Understand
The key in any investment strategy is
to survive market conditions and prevent permanent loss of capital and so asset
price and selection must have some framework or check list that allows for a
rational buying decision. Allocating capital requires
great care and a check list of "things to do" can be helpful to
prevent permanent loss of capital.
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Feel free ask question and comment.
FII
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