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6 Questions to maximise your future income

I’ve had a lot of calls recently on what to invest in, where to invest, and even asked my self a few times “wow, that looks cheap, maybe I should invest?”

Let’s be clear: the crisis we are facing is not an economic issue. Rather, it’s an exogenous variable that has stuck a big metal pipe into the economic cog that we’ve spent centuries trying to finesse. The reason why this has become a bigger issue compared to Sars, Mars, Ebola and other infections is because we haven’t been able to handle it. Western economies were previously quite lucky the protection that Eastern Economies gave them (note that Singapore and South Korea have had relatively few deaths per capita compared to Italy, Spain, Germay, the UK and the US). This time, things are different.

Given this fall out: it’s not hard to see that equity markets are down 30%. That get’s people talking — is there free money on the table? And can I have some?

I’m a pragmatic individual so I’m going to approach the problem from a pragmatic perspective. I won’t list down exactly what to do (take those as homeworks away from the screen) but do pay attention.

To begin to understand what makes a good investment, you need to first have a concept of risk. Risk is the variability of return (risk ~vol ~ sigma ~ standard deviation).

Look at the below chart, which stock has the highest variability? (P.S. I stole the chart from another medium article, hope that’s ok!)

Ultimately, we know that in a stable time period we ideally want stable returns. Investors would generally go for the asset with the most stable and highest return (highest sharpe ratio) and leverage up their investment to hit their target $ return (in this case, you could buy 3x Cisco shares to give you a much better investment than your Amazon share).

However, when you’re actually in a crisis, you don’t mind upward sudden movements, but can you spot them?

To make it easy, you should be confident in your answers to the following questions

  1. Why do you think you’re in a crisis? How does this crisis compare to previous crisis’s? How much further will this crisis exist for? How sure are you?
  2. How much further can the price of your prospective investment go down? If you invest right now, are you willing to accept the price may go down?
  3. How much have comparable investments gone down in value and why? Do those reasons apply here?
  4. What is the cost of me holding onto cash — do I just have an itchy wallet?
  5. Why do I think this investment will go up, other than ‘it just will’? Prices move based on supply and demand — why will demand increase or more importantly, why may supply decrease?
  6. Can you handle the investment? Can you manage it the workload it entails in this period of time? I.e. if you invest in a property, can you afford the mortgage repayments through the crisis IF your personal situation changes?

If you have any more questions please message me as I’m always happy to help. I’m a mathematician and an academic — and I can mathematically prove that sensible decisions mitigate severe losses.



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