Understanding opportunities

by Admin
Updated: June 24, 2018

Identifying and understanding opportunities for financial safety and wealth development

You can increase your wealth in many ways. Some will suit you better than others. Of those, some will be more profitable than others. If you can find agreement between your understanding of the big picture, the word on the street and your own feelings, you’ve probably found a winner.

How do you decide what to do with the time & money you have in order to increase your wealth? Do you invest in some stocks? Do you invest in a business? Stocks can go down in value and businesses can fail. How do you choose?

Top down (macroeconomics)

With a top down approach you look at macroeconomic indicators and try to figure out the downstream implications.

If you’re thinking about playing the markets, you should consider that the major players are always way ahead of you. Unless you have proper insight, by the time you hear of something that affects the production or export of some commodity, you’ll find that the futures market for that commodity has already taken account of it. This is one reason why it can be very difficult to make money as an individual from a top only approach.

I recommend following the value of your primary currency on the foreign exchange markets (Forex or FX), the price of gold and the price of any commodity used in any business activity you’re interested in. Try to understand why they fluctuate based on information about politics, industrial activity, the weather etc.

For example, is the price of coffee being affected by demand or supply? What are the implications for the coffee industry if the price of coffee changes?

Grass roots (microeconomics)

With a grass roots approach you try to discern the fundamentals that bubble up into market trends. This involves interacting with people to learn about how they earn & spend their money and what changes they are anticipating or hoping for.

The limitation of this approach is, of course, that it’s very local. But it can provide insights that can’t be obtained from national statistics or global charts and this can give you a distinct advantage, especially if you’re investing at a local level.

I recommend paying special attention to living accommodations (house prices & sales, new construction etc.) and what people are doing for entertainment (changes in local bars, restaurants etc.).

For example, if business is booming for your local coffee shop do you know what’s driving it and are there opportunities for related businesses?

Mind & mind

If you can use both the top down & grass roots approaches and reconcile them, you’ll have an understanding of how supply & demand are connected across the different scales. This will enable you to make predictions and recognize signals so you can take action in good time. This has as much to do with protecting your wealth as growing it.

Heart & heart

Your gut feeling comes from subconscious connections that your conscious mind doesn’t or cannot follow. It isn’t reliable on its own but the extent to which it aligns with your conscious conclusions is important. If you think something is right and it also feels right then it’s much more likely to be right.

If it also feels like something you’d enjoy being involved with, it might be an opportunity you should pursue.

Mind mind heart heart

Everything you experience can lead to opportunities. Use this checklist to discover ones that are right for you:

  • Grass roots observations are positive
  • Economic outlook supports grass roots observations
  • It feels right
  • It’s exciting

More info

The nature of understanding - what it means to understand something - is investigated in chapter 2 of Understanding by Design by Grant Wiggins and Jay McTighe. Full text at ascd.org.

Investopedia.com defines macroeconomics and microeconomics.

The IMF describes “Micro and Macro: The Economic Divide” including some historical background info and “Many results in microeconomics are shaky” at The Economist makes describes how economics is not an exact science (“Microeconomists are wrong about specific things, whereas macroeconomists are wrong in general.” -- Yoram Bauman).

Those who study economics recognize that it cannot be fully explained by mathematics: “Intuition is the real economics” (alt‑m.org) and “Intuition in economics can’t replace reason” (fresheconomicthinking.com).

“Why Intuition Is Important” is supported with an example by Jason Voss at blogs.cfainstitute.org.

Internal links

Introduction to commodities Introduction to Forex Investing vs trading Use of magic All articles
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