Every one makes investment mistakes. From the time we were born, we learned from the mistakes we made. As investors, we need to learn from our investment mistakes by recognizing when we make them and make the appropriate adjustments to our investing discipline. When we make a losing investment, do we recognize our investing mistake and learn from it, or do we attribute it to some outside factor, like bad luck or the market? To make money from your investments and beat the market, we must recognize our investing mistakes and then learn from them. Unfortunately, learning from these investing mistakes is much harder than it seems.Some of you may have heard of this experiment. It is an example of a failure to learn from investing mistakes during a simple game devised by Antoine Bechara. Each player received $20. They had to make a decision on each round of the game: invest $1 or not invest. If the decision was not to invest, the task advanced to the next round. If the decision was to invest, players would hand over one dollar to the experimenter. The experimenter would then toss a coin in view of the players. If the outcome was heads, the player lost the dollar. If the outcome landed tails up then $2.50 was added to the player’s account. The task would then move to the next round. Overall, 20 rounds were played.In this study there was no evidence of learning as the game went on. As the game progressed, the number of players who elected to play another round fell to just over 50%. If players learned over time, they would have realized that it was optimal to invest in all rounds. However, as the game went on, fewer and fewer players made decisions to invest. They were actually becoming worse with each round. When they lost, they assumed they made an investing mistake and decided to not play the next time.So how do we learn from our investing mistakes? What techniques can we use to overcome our “bad” behavior and become better investors? The major reason we don’t learn from our mistakes (or the mistakes of others) is that we simply don’t recognize them as such. We have a gamut of mental devices set up to protect us from the terrible truth that we regularly make mistakes. We also become afraid to invest, when we have a losing experience, as in the experiment above. Let’s look at several of the investing mistake behaviors we need to overcome.I Knew ThatHindsight is a wonderful thing. As a Monday morning quarterback, we can always say we would have made the right decision. Looking again at the experiment mentioned above, it is easy to say, “I knew that, so I would have invested on each flip of the dice”. So why didn’t everyone do just that? In my opinion, they let their emotions rule over logical decision-making. Maybe their last several trades were losers, so they decided it was an investing mistake and they become afraid to experience another losing trade.The advantage of hindsight is we can employ logic as we evaluate the decision we should have made. This allows us to avoid the emotion that gets in our way. Emotion is one of the most common investing mistake and it is the worst enemy of any good investor. To help overcome this emotion, I recommend that every investor write down the reason you are making the decision to invest. Documenting the logic used to make an investment decision goes a long way to remove the emotion that leads to investment mistakes. To me the idea is to get into the position where you can say “I know that” rather than I knew that. By removing the emotion from your decision, you are using the logic you typically use in hindsight to your advantage.Self CongratulationsWhenever we make a winning investment, we congratulate ourselves for making such a good decision based on our investing prowess. However, if the investment goes bad, then we often blame it on bad luck. According to psychologists, this is a natural mechanism that we, as humans possess. As investors, it is a bad trait to have as it leads to additional investing mistakes.To combat this unfortunate human trait, I have found that I must document each of my trades, especially the reason I am making the decision. I can then assess my decisions based on the outcome. Was I right for the right reason? If so, then I can claim some skill, it could still be luck, but at least I can claim skill. Was I right for some spurious reason? In which case I will keep the result because it makes me a profit, but I shouldn’t fool myself into thinking that I really knew what I was doing. I need to analyze what I missed.Was I wrong for the wrong reason? I made an investing mistake, I need to learn from it, or was I wrong for the right reason? After all, bad luck does occur. Only by analyzing my investment decisions and the reasons for those decisions, can I hope to learn from my investing mistakes. This is an important step toward building genuine investment skill.Luck Becomes InsightThe market is comprised of a series of cause and effect actions, which are not always transparent. This cause and effect has created some interesting behaviors by some very successful people. For example, some baseball pitchers are known to not step on the white chalk line when they are playing. I am sure you have heard of many “superstitions” that people hold to be true to help them perform well.In an experiment by Koichi Ono’s in 1987, subjects were asked to earn points in response to a signal light. They could pull three levers, though they were not told to do anything in particular. They could see their score on a counter, but did not know that points were awarded completely independent of what they did. Nothing they did influenced the outcome in terms of points awarded. During the experiment, they observed some odd behavior as the participants tried to make the most points possible. Most subjects developed superstitious behavior, mainly in patterns of lever pulling, but in some cases, they performed elaborate or even strenuous actions. Each of these superstitions began with a coincidence. In some cases, the participants would pull levers in a particular sequence. In other cases, even more odd behavior was observed, including a person who jumped off a table and then later jumped up to touch the ceiling to “score” points. Keep in mind the points were awarded either on a fixed time schedule or on a variable time schedule, not based on the action of the participant.The point of this is that as humans we tend to think that luck is insight. We fail to analyze effectively the situation and the real reason for our success or failure. In investing this behavior will lead to ruin. To help overcome our natural tendency, we must document our investing decisions and then assess the results. This assessment process helps us learn from our success and from our failures and is critical for each of us if we hope to become successful investors.Learn from Investment MistakesTo help avoid investing mistakes, what should you document before you make an trade? I like to look at three categories regarding a stock I am considering. First, I look at a series of fundamental information such as earnings yield, return on capital, revenue growth, insider holdings, sector, and free cash flow. The fundamental information helps me identify if this is a good company with growing earnings, good management and has potential. After reviewing the appropriate financial information including SEC documents, I identify the risks inherent in the company. These risks might include competition, market share, insider transactions, and any litigation that the company is experiencing. Here one needs to try to identify every possible risk and assess them critically. Finally, I look at the chart of the stock, seeking to identify support and resistance zones. This gives me potential entry points, exit targets, and the trailing stop loss. I complete these sections with a written trading strategy describing how I expect to make my trades. All these investment factors should be documented before making a trade. Once the trade is complete, I review them to see what I can learn so I can avoid any investing mistakes in the future.To learn from our investing mistakes, we need to document our actions before we make the decision. We also need to be honest with ourselves when assessing our results. As we have seen, it is quite easy for each of us to put on rose-colored glasses and think we are better investors than we really are. We need to assess critically our investing abilities without distorting the feedback we receive from our decisions. Those of us who are able to learn this valuable skill will benefit greatly. Those of us who are unable to apply this learning will be destined to mediocrity at best and likely lose much of their capital before they quite investing.

For healthy and continuous in flow of Foreign Direct Investments (FDIs) to Nigeria, the country has over the years put in place friendly legal framework for Foreign Direct Investments (FDIs) protection.In this Foreign Investors’ Guidelines for Doing Business in Nigeria Series, we shall be examining the legal mechanisms put in place for the purpose of encouraging an increasing FDIs inflow and ensuring foreign investors’ confidence in the country.We shall be discussing foreign investors’ protections ranging from certainty of arbitral proceedings and other dispute resolution mechanisms in the country.The fact with modern economic systems is that no country can be an island economically; Foreign Direct Investment (FDI) protection is very essential to the successful attainment of foreign investors’ business objective(s) and economic development of any economy.There are steps that host countries can lawfully take in the exercise of their sovereignty and power can lead to depriving foreign investors of reaping the fruits of their investments.Host government actions that can affect foreign investment adversely includes nationalization; the act of a government taking control of a private enterprise and converting it to state or public ownership.Expropriation; the act of a government taking possession of or otherwise meddling with privately held assets or property for the use and benefit of the public, or in the public interest.The legislative and administrative acts of the government as government action can also have adverse effects on foreign investors’ businesses in Nigeria.This is the indirect or creeping form of expropriation. The only difference is that, it mode of operation shifted attention from the physical and actual taking-over of an investor’s assets to the legislative and administrative acts of the government.While not depriving a foreign investor of the ownership of an asset in this type of government control, it is capable of significantly reducing the value of properties and investments of the foreign owner.Foreign investors don’t like investing in country’s with risk such as arbitrary revocation of a license; permit or a concession after the investor has made the requisite investments.The advancement and expansion of international business relationships and the importance of foreign direct investment to the economic development of Nigeria has made the country to put in place some foreign business protection laws for the purpose of encouraging foreign investors.Nigeria has performed greatly in providing protections to potential foreign investors.Investment TreatiesIn spite of the provisions of Section 12 of the Nigerian Constitution, investment treaties entered by the country are binding on, and enforceable against Nigeria upon ratification under the principle of ‘pacta sunt servanda’.Also, by a literal application of Article 31 of the Vienna Convention on the Law of Treaties which provides that a treaty shall be interpreted in good faith in agreement with the ordinary meaning to be given to the terms of the treaty.Bilateral Investment Treaties (BITs): Nigeria entered into its first Bilateral Investment Treaty (BIT) with Germany in 1979 which came into force in 1986.According to finding from my investigation Nigeria has entered into 28 Bilateral Investment Treaties (BITs) between 1986 and November, 2015.Of the total number, 13 are currently in force, 14 are signed and 1 repealed. The Bilateral Investment Treaties (BITs) currently in force are the ones entered into with Finland, France, Germany, Italy, Netherlands, Romania, Serbia, Spain, South Korea, Sweden, Switzerland, Taiwan, and United Kingdom.The 14 BITs which have been signed by Nigeria but are yet to enter into operation were signed as far as back as 1996.In addition to the usual investment protection standards, these BITs provide that a contracting state shall not damage by irrational or unfair means the maintenance, management, disposal of investment in its territory of nationals or companies of the other Contracting Party.And the same recompense for losses suffered due to a safety event made to a domestic investor shall be allowed to the investor from the other contracting state.These BITs also provide for the right of subrogation allowing foreign investors to obtain suitable investment insurance and for these investment insurance providers to seek remedy on their behalf from Nigeria.The BITs that are presently in force have also made satisfactory requirements for the standard investment protection. These include fair and equitable treatment, umbrella clauses, most favoured nation status, national treatment, obligations against arbitrary and discriminatory measures and security.Multi-lateral Investment Treaties (MITs): Economic Community of West African States (ECOWAS) treaty is one of the famous MITs Nigeria have entered. The ECOWAS treaty was signed on 28th May 1975; it came in into force on the 20th June, 1975.The treaty currently has 15 signatories who are member states of ECOWAS.Article 2 of the Treaty gives ‘Community Enterprise’ status to businesses whose equity capital is owned by two or more member states, and citizens or institutions of the Community.Article 16 of the Treaty provides that Community Enterprise shall be accorded favourable treatment with regards to incentives and advantages, and shall not be nationalised or expropriated by the government of any member state except for valid reasons of public interest, and subject to the payment of prompt and adequate compensation.Organization of Islamic Conference (OIC) investment treaty is another MIT Nigeria has entered into in relation with providing favourable conditions for foreign investments in the country.OIC is a treaty with an Agreement on Promotion, Protection and Guarantee of Investments among Member States of the Organization of the Islamic Conference, which came into force in September, 1986.Chapter 2 of the Treaty mandates all member states of the Organization of Islamic Countries to provide adequate security and protection to the invested capital of an investor who is a national of another contracting member state.The terms of protection specifically include the enjoyment of equal treatment, undertaking not to adopt measures that may directly or indirectly affect the ownership of the investor’s capital or investment and not to expropriate any investment except it is in the public interest and on prompt payment of adequate compensation.Host states are further obligated to guarantee free repatriation of any capital and returns due to an investor.Conventions to which Nigeria is a Signatory:The country is signatory to a number of Conventions which have been entered into for the purposes of protecting foreign direct investment.The most significant convention in this regard is the Convention for the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention).International Centre for the Settlement of Investment Disputes (ICSID) as an arbitral institution under the World Bank Group is a fully integrated, self-contained arbitration institution that provides standard arbitration clauses, arbitration proceedings rules, arrangements for venues, financial arrangements and administrative supporting including the appointment of arbitrators to parties.Convention for the Settlement of Investment Disputes between States and Nationals of Other States (ICSID) primarily provides for the settlement of investment disputes between investors and sovereign host states.It has also taken the necessary legislative measures to make the Convention’s resolution effective in Nigeria by enacting it as a domestic legislature in the International Centre for Settlement of Investment Disputes (Enforcement of Awards) Decree No. 49 of 1967.Another significant investment protection convention Nigeria has entered into is the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.New York Convention was adopted by the United Nations in June, 1958 and it mandates domestic courts in signatory countries to give effect to arbitration agreements, and to also recognise and enforce valid arbitral awards given in other signatory states.The New York Convention in other words is particularly significant for the enforcement of arbitral awards resulting from non-ICSID investment arbitration proceedings.In an attempt to bring into conscious awareness the legal guidelines to undertaking business in Nigeria to intended foreign investors, we shall specifically be reviewing domestic legislations and investment treaties which collectively make up the legal framework for foreign investment protection in the country.The Domestic Legal Framework:The notable investment legislation in Nigeria is the Nigerian Investment Promotion Commission Act, CAP N117 Laws of the Federation of Nigeria (“NIPC Act”).The NIPC Act provides the fundamental and suitable legal framework for the protection of foreign investors in the country. Part 5 of the NIPC Act provides that foreigners may invest and participate in any enterprise in Nigeria.They are assured unrestricted transfer of funds attributable to the investment such as profits, dividends, payments in respect of loan servicing, and the remittance of proceeds obtained from the sale or liquidation of assets or any interest in the venture through an approved dealer in freely convertible currency.Section 25 of the NIPC Act clearly provides that no enterprise shall be expropriated or nationalised without prompt payment of compensation; the same section also provides a protection clause to an investor to claim “creeping” expropriation by establishing that the acts complained of indirectly results to expropriation or have expropriatory tendency.Lastly, the NIPC Act provides that disputes between a foreign investor and any government in Nigeria arising from an investment shall be submitted to arbitration within the framework of any investment treaty entered into between the government of Nigeria and any state of which the foreign investor is a national.It further provides that where there is a disagreement between the Nigerian government and the foreign investor on the mode of dispute settlement, the dispute shall be submitted to ICSID for arbitration.Foreign investor is thus at liberty in Nigeria to institute arbitration proceedings against a government even after bringing a claim or counterclaim against the government in a court or domestic arbitration.Another domestic legislation that provides protection to foreign investors is the Foreign Exchange (Monitoring and Miscellaneous Provisions Act) CAP F34.Section 15 of this Act provides that any person may invest in any business venture with foreign currency or capital imported into Nigeria through an authorized dealer who will issue a Certificate of Capital Importation to the foreign investor.Sub-section (4) of the same section in addition guarantees unconditional transferability of funds in freely convertible currency of any such monies arising from an investment made in Nigeria with foreign currency, including dividends and profits, payments in respect of loan servicing, and remittances of the proceeds of sale or liquidation of assets.A similar provision on repatriation is also found in Section 18 of the Nigeria Export Processing Zones Act, CAPN107 (“NEPZA Act”).Section 18 of the NEPZA Act provides that foreign investors who invest in outlined businesses within an export zone shall be eligible to remit profits and dividends earned in the zone and repatriate foreign capital investment at any time with capital appreciation of the investments.Other foreign investors’ protection laws are the Arbitration and Conciliation Act. The act gives foreign investors the opportunity to determine the mode of settling disputes that may arise out of their investments without resort to litigation in domestic (Nigeria) courts.With the anticipation that such settlement will unfailingly and efficiently protect and enforce the rights of foreign investors and their investments provides a framework for domestic arbitration it also makes provisions for international commercial arbitration which is more preferable by foreign investors.Section 56(2) (d) defines ‘international arbitration’ to include any arbitration that the parties have expressly agreed in the arbitration agreement to treat as international arbitration. The Act provides that every arbitration award is capable of enforcement under the New York Convention.Nigeria’s entries into these investment treaties and its enactment of the Conventions into domestic legislation have made the protection mechanism part of Nigeria’s legal framework for protection of Foreign Direct Investments (FDIs) friendly and convenient to actual and potential foreign investors.

The investment services industry can be daunting and ambiguous for individuals who seek a return on their capital. After working hard earning your wealth, it is important to understand the different services offered by professionals and what solutions fit you personally. One of the main questions we get asked here is:”What is the difference between investment management and stockbrokers?”Firstly, let’s discuss what stockbrokers are – we all have a much better, clearer, idea of what they do and who they represent. Stockbrokers are regulated firms that offer financial advice to their clients. A stockbroker buys and sells equities and other securities like bonds, CFDs, Futures and Options on behalf of their clients in return for a fee or commission. A brokerage / stockbroker will receive a fee on each transaction, whether the idea is profitable or not.A brokerage can specialise in any investment niche they wish for example:
FTSE All-Share stocks,
AIM stocks,
European Stocks,
Asian Stocks,
US Stocks
Combinations of the above
Straight equities,
Straight derivative trading (CFDs, Futures & Options)
The main reason why investors choose stockbrokers over any other professional investment service is simply down to control. Due to the nature of a brokerage firm, they can only execute a trade after you instruct them to do so. This means it is impossible for a brokerage to keep buying and selling securities without you knowing – known as churning for commission. This doesn’t however prevent stockbrokers providing you with several new ideas a week and switching your positions to a new idea.However, there are natural flaws with the brokerage industry is that because trading ideas can only be executed after being instructed to list a few flaws;-
you may miss out of good opportunities due to moves in the market,
you may get in a couple of days later because you were busy and not make any money after fees,
you may receive a call to close a position but unable to without your say so.
The above are examples that can happen when investing with brokerage firms, but this is due to the reliance of gaining authorisation from their clients. So if you are ultra busy or travel a lot then you could potentially miss out on opportunities to buy or sell.What are investment managers?Now we understand what stockbrokers / brokerage firms are about, let’s discuss what investment management services can do for individuals.Investment management firms run differently to brokerages. The core aspect to these services is that the professional investment managers use their discretion to make investment decisions. As a client of an investment management firm you will go through a rigorous client on boarding process (just like a brokerage firm) to understand your investment goals, understanding of the services being used, risk profile, angering to the investment mandate and allowing the service to manage your equity portfolio. The sign up with the service may seem long winded but it’s in your best interest to ensure the service is suitable and appropriate for you. In reality, it’s not a long winded process at all. Once you agree to the services offered then you will only be updated on the on-going account data and portfolio reporting in a timely manner. This means no phone calls to disrupt your day-to-day activities and allows the professionals to focus on your portfolio.Investment management firms usually have specific portfolios with a track record, into which you can invest your capital according to you appetite for risk. These portfolios will focus on specific securities, economies, risk and type of investing (income, capital growth or balanced). All of this would be discussed prior or during the application process.Another method used by investment management firms is different strategies implemented by their portfolio managers. These strategies are systematic and go through thorough analysis before investment decisions are made.The fees usually associated with investment management firms can vary from each firm. There are three common types of fees and are usually combined, fees can be;-
Assets Under Management Fee – This is where you pay a percentage of the portfolio per year to the firm, usually an annual fee. E.g) 1% AUM Fee on £1,000,000 is £10,000 per year.
Transaction Fee – This is a fee associated with each transaction made through your portfolio – similar to the brokerage firm’s commission.
Percentage of Profits Fee – This is where any closed profits generated over a set time will be charged to the firm. E.g) 10% PoP Fee – the firm generates you closed profit of £10,000 in one quarter – you will be charged £1,000.
The main benefits provided from investment management firms is that after the service understands your needs and tailors the service around you, it is their job to build a portfolio around you. It is also the job of the investment management firm to adhere to the investment mandate you agreed on, we’ll take about this later, so you understand of the time frame given what you should expect. Another bonus why high-net worth individuals choose investment management services is because they are not hassled by phone calls every other day with a new investment idea.The difference… The main difference between investment management and stockbroking firms is:
Investment Managers offers discretionary services; no regular phone calls about stock ideas.
Stockbrokers give you more control as you can personally filter out ideas you think won’t work.
Investment Managers offer an investment mandate; this is where the investment management service provides a document of what they are offering you in return of managing your portfolio. You will understand what exactly they are targeting over the year, based on what risk, and should they achieve it – then they have fulfilled their service. E.g) the mandate could state that the strategies used and based on 8% volatility (risk), they seek to achieve 14% capital return.
Stockbrokers do not offer an future agreements but look to deliver growth during the time you are with them. They are not bound by their performances like investment managers.
Investment management firms have a track record for all of the strategies and services used, stockbrokers do not.
Which to choose?Both services provide professional approaches to investing in the stock markets. Stockbrokers are chosen over investment managers by people who like to be in control and receive financial advice. Stockbrokers generally do not have a systematic approach to the markets but use selective top-down approaches to select stocks.Investment managers are chosen by investors who want an agreement on their performances over the year and understand the risk up-front. Usually more sophisticated investors that wish to take advantage of the track-record and gain an understanding of the systematic approach used by the investment management firm.Feel free to learn more.DISCLAIMER: The above is not considered financial advice or any endorsement to use any particular service. If you wish to use any of the services mentioned, please seek independent advice.RISK WARNING: Spread betting, CFD, futures and options trading carries a high level of risk to your capital and can result in losses that exceed your initial deposit. They may not be suitable for everyone, so please ensure that you fully understand the risks involved. Past performance of a managed service is not a guide to future performance.