By Babajide Komolafe

“Money is lost when invested in things you are not familiar with”.  This is the fourth basic law of money, according to the Richest Man in Babylon. It is also the reason why many people lose money  in investment. It appears simple, but unfortunately, it is often ignored or taken for granted by investors.

The reason why most people lose money investing in shares is because they personally are not familiar with shares. People have also lost money investing in poultry business because they know little or nothing about it. There is this young graduate that went into the business of food stuffs, specifically rice and beans. He confessed that he lost some money at the early stage of the business because he did not have adequate knowledge about the business.

He had to go and learn from the mallams, who of course have years of experience in the trade. Most times, because we see people succeeding in a particular type of business or investment, we rush into it, only to get our fingers burnt simply because we did not take time to get ourselves acquainted with that business.

Another painful reality of this law is that, when you invest in what you are not familiar with, you become vulnerable to exploitation by others. It may even be your business partner, your stock broker, or even your banker. Once they know you know little about what you are investing in, they exploit you, and you lose money or make less money.  For example, if you want to invest in a bank deposit, the bank would ask you for how many days or months.

If you are naive, you can say for one year (365 days). Meanwhile the best thing to do is to invest the money in 30 days deposit, and roll over at the end of the 30 days, and thus get more returns courtesy compound interest. Your bank or banker may however not advise you to do it this way because fixing the money for one year, is more expedient for the bank and not for you the customer.

Hence for those who know they need to invest but are deterred or discouraged from doing so due to fear of losing money, the important thing is to educate yourself about any business or investment activity before you invest your money in it. For example, before investing in shares, learn about shares and stock market. Before investing in bank deposits, learn about bank deposits, before you invest in mutual funds, learn about mutual funds. The implication is that you must invest time to learn about that activity before you invest money in it. And the internet has made it easy to learn anything within few minutes. On the internet, you can get materials that offer basic education about any form of investment, which would not take you more than one hour to read. You can visit somebody that you know has some experience in that investment activity and ask for education. But if you are not willing to take this first and critical step to profitable investing, you have chosen to invest in something you are not familiar with, and hence losing your hard earned money. (To be continued next week)  Send comments and enquiries to vanguardinvestmentforum@:gmail.com)