What kind of investor do you want to be?
This may be the question bothering everyone who has the goal of achieving financial independence. However, are you mentally prepared to become an investor? Have you done your analysis and research before you get in the market?
In fact, a true investor is prepared for whatever happens. A gambler tries to predict what and when things happen. If you are prepared, there is a deal of a lifetime being presented to you everyday of your life! The following explains the different categories of investors exist in the market. Let's review them one by one:
The Accredited Investor
The accredited investor is someone with high income or high net worth. A long-term investor who has chosen for security and comfort may very well qualify as an accredited investor. Many highly paid employees or self-employed persons fit in this category of investor.
Individuals with the following amount of money can be classified as accredited investors:
- $200,000 or more annual income for an individual
- $300,000 or more for a couple
- $1 million net worth
The Qualified Investor
The qualified investor can be defined as the person who has money as well as some knowledge of investing. Qualified investors include most professional stock traders who are accredited investors and has invested in financial education. They have learned and understand the difference between fundamental and technical investing.
A fundamental investor searches for value and growth of a company by looking at the financial statement. The most important consideration for selecting good stock for investment is the future earnings potential of the company. Warren Buffet has been acknowledged as one of the best fundamental investors.
On the other hand, a well-trained technical investor invests on the emotions of the market and invests with insurance to hedge against catastrophic loss. The most important consideration for selecting a good stock is based on the supply and demand for the stock of a company. George Soros is often recognized as one of the best technical investor.
The Sophisticated Investor
The sophisticated investors know as much as the qualified investors but has also studied the advantages available through the legal system. They are familiar with the following specialties of law:
- Tax law
- Corporate law
- Securities law
While not a lawyer, the sophisticated investor relies his or her investment strategy on the law as well as the financial products in determining the potential returns. They often gains higher returns with very low risk by using the different disciplines in law.
The Inside Investor
Although an important distinction of the inside investor is the aspect of control over management of a company, the most imperative point is that one does not need to have a lot of income or net worth to become an inside investor. An officer, director or owner of 10% or more shares of the company is an inside investor.
Actually someone with the financial education but not the financial resources can still become an inside investor. This is where many people enter the world of investing today. By building their own companies, inside investors are building assets that they can run, sell or take public.
The Ultimate Investor
The ultimate investor is a person like Bill Gates or Warren Buffett. These investors build giant companies that other investors want to invest in. The ultimate investor is a person who creates assets that become very valuable that it is worth literally billions of dollars to millions of people.
Both Gates and Buffett became rich not because of their high salaries but because they built great companies and took them public. While it is not likely that everyone of us will ever build a Microsoft or Berkshire Hathaway, we all have the possibility of building smaller businesses and becoming wealthy by selling it privately or publicly.
