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I’ve been a dumb money person. I remember years ago in university when I just learnt about the stock market and felt I could make millions just by buying cheap stocks at low prices, then selling them higher than I bought them.

Unfortunately for me, till today, the stocks haven’t risen in price; in fact, some of the companies have been delisted from the stock exchange, while the others are trading at less than I bought them for over 10 years ago.

Opportunity cost of your investment, Is there a legitimate Nigerian business that can guarantee 5-10% monthly interest?

  • Smart money people are usually big time investors like asset management companies, investment banks and other big financial institutions that have all the resources, data and tools to outperform the market at a given point in time.

Dumb money people are like you and I reading this article, who casually watch the news and take investment tips from the media and fake experts.

  • Smart money people have a deep understanding of the financial markets which they can use to identify or foresee trends and demographics before others. They’ve read hundreds of books on stocks, bonds and other financial assets. They have studied and keep studying the history of financial markets, how industries evolve, and what causes booms and busts.

Dumb money people do none of the above.

READ MORE: Between saving, investing, speculating, trading & gambling

  • Smart money people diversify their capital across different asset classes and countries in order to limit exposure to risk and measure how each of these diversified investments is uncorrelated with each other.

Dumb money people don’t diversify, or just do it for doing sake without measuring correlation.

  • Smart money people usually play the long game – whether they are investing in stocks or a business. There is this visionary thought to their investment process and the belief that all gains will eventually come from increments in compound interest.

Dumb money people usually look for ways to make quick money and have the get-rich-quick mindset.

A quick look at the evolution of money

  • Dumb money people are always on the lookout for a quick formula or a few formulas they can just plug in to help make an investment decision.

READ ALSO: FSD Africa invests $3.2 million in two African fintech firms operating in Nigeria 

Smart money people understand that the success of investment are dependent on qualitative and quantitative factors, not just a few financial formulas.

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Before investing in a business, they ask themselves certain questions:

  • What are the values of the management of the business?
  • How competent is the management and/or workforce?
  • What is the integrity level of management?
  • Does this business have a competitive advantage?
  • Does the business have a strong demographic?

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