In a world that has been riddled with scams by the likes of Bernie Madoff, by greed promoted by big banks and continuous financial crisis after crisis, how can you see the forest through the trees? People have gotten to the point of being paralyzed no matter what they see. How do you recognize a legitimate “true and valid” opportunity? Let me try to formulate some simple guidelines to help keep you on track.
1. Past results are not indicative a future earnings
This phrase is probably printed on every risk disclaimer ever constructed. Investing by past results is like ordering from the right side of the menu, expecting the price to be the deciding factor of quality. What many investors don’t realize is that while the vehicle achieved these results before, it is increasingly difficult to match or exceed.
Individuals at the beginning of a project have the most to gain. Simultaneously this is when the risk is the greatest so this should not be a surprise: Risk=Reward. To build on that, I don’t feel that risk is linear. I believe it is more like a tea-cup with risk coming in at the end of a cycle or product, without the benefit of potential reward.
3. Do your own Due-Diligence
It’s your money and you worked hard for it.
Does a project stand on its own two feet? Does the story make sense? Do the numbers stack up? If you go forward, will you feel good about your decision, regardless of the outcome based upon all known information?
4. Stay open and have a creative view
As titled, opportunities don’t always come wrapped in nice wrapped packages. When you look at the row houses below do you see an eyes sore of urban blight or the future. Do you see a worthless asset that needs to be torn down or do you see a section of history, that is available at deeply discounted prices, that needs to brought back to life…with the promise of luxury town homes in a revitalized area with young families, restaurants and cafés?
Sometimes things do come wrapped and it necessitates a decision. When all items stack up and the opportunity seems right, are you able to commit? Some people can’t under any circumstance. The fear of loss paralyzes this kind of person. It is important to recognize if you are this kind of person and save yourself the time and anxiety of looking at opportunities. This is a person that belongs in a 100% secured investment usually involving a mattress.
6. Keep your antenna up
You never know when or where the opportunity will present itself. It might be nicely wrapped or it might be a diamond in the rough, but one thing is for sure: they will come around.