From time to time we get confronted by investment or business opportunities. Virtually anyone is big on making money nowadays. As such it becomes important to know how to properly handle investment opportunities. Lately, E-Creator has been topical. For the many who were duped, it all started with the pursuit of an investment opportunity. There are countless other different types of investment opportunities you may find. The important thing is to carefully assess it before parting with your money. There are things you should ask yourself first. Here are some questions to ask when considering an investment opportunity:
How Much Do I Currently Have And Can Afford To Lose?
Before you even seriously consider an investment opportunity you should consider what you currently have. It seems obvious but many people do not quite think this through. For example, some people borrow to invest – not a smart idea! Then you have to consider how much you are willing to lose.
The thing is investment entails risk; things may go south. Thus it is smart to only invest money you will not distress about if lost. If applied well this serves as a regulatory principle. The bottom line, is what you currently have and can afford to lose should be the starting point. It will even guide you on which investment opportunities you should pick.
NB: In some cases borrowing to invest may be plausible. However, you should only do this when you have done proper due diligence to ascertain returns that will finance repayment. A risky approach though but can work in some cases. Best to spend what you really have – safer!
Is Registration And Or Licensing In Order?
It is dangerous to invest in something that is not registered or licensed. How will you know whether or not it is even legal? Being registered or licensed often leads to other good indicators. For instance, something properly registered or licensed will have traceable digital and physical footprints. In Zimbabwe, investment providers should be registered with the Securities Exchange Commission of Zimbabwe (SECZim), while deposit-taking institutions are registered with the Reserve Bank of Zimbabwe. There will be nothing to hide. Later on, we shall mention the security aspect of your investment. This is often easy to ascertain when something is registered or licensed because it will be subject to regulatory oversight.
Do I Have The Knowledge And Skills To Grasp The Industry And Or Idea In Question?
This is another fundamental question to ask yourself at the onset. In simple terms, do you comprehensively understand the industry or idea in question? You are better placed to consider whether or not to do something if you are knowledgeable of it or skilled in it. Investing in something you do not understand can be costly.
This is because you will tend to be oblivious of the inner workings that often drive key decision-making. Sure enough you can invest time to learn and grasp what you want to invest in. However, the best principle is to only invest in what you know and understand. Warren Buffet, an iconic billionaire investor once said, “Never invest in a business you cannot understand”.
What Is The Business Or Revenue Model?
This is a question that seeks to establish a number of core things. You will be seeking to establish what is being sold – goods or services? You will be seeking to establish the viability of what is being sold. Is there a demand for it? Is it scalable? These are foundational metrics that enable financial projections or forecasting. That way you can tell, based on tangible premises, how your investment will likely fare over time.
If you remember from the discussion on pyramid or Ponzi schemes, you can tell why this question is important. Only invest in opportunities that entail tangible stuff or services being sold, with a clear demonstration of long-term viability. Notice I said long-term. Warren Buffet once said, “Time is the friend of the wonderful business, the enemy of the mediocre”. A sketchy business model is always suspicious!
Are There Any Competing Opportunities?
Just because an investment opportunity has come your way does not mean it is the only one. As in, there may well be better opportunities out there. This brings into focus the aspect of competition. Typically an investment opportunity entails a business operation that you will be investing into. As is the norm in business there will usually be competition. Thus you will need to explore that particular operation’s competitors.
Yes, there can be better investment opportunities in the same line; you have to consider that. However, there is another important dynamic. If the business operation you are considering investing in has stronger competition that can be problematic. As in, that may compromise revenue generation and jeopardize your projected returns on investment. That is why looking into the competition is key.
Is Or Will My Investment Be Protected?
This is also an important question to ask. No doubt risk is involved when making any investment. Regardless, will your investment be protected? In the event something happens, will you be able to salvage at least your initial investment? How about the possibilities of getting duped or short-changed – are there safeguards against that? I mentioned deposit-taking institutions earlier and these are insured under the deposit protection laws of Zimbabwe. These are some of the important things to consider when considering an investment opportunity. If you cannot be sure that your investment will be protected it is best to not invest at all. Never take any chances if the security of your investment is uncertain.
These are some of the important questions to ask when considering an investment opportunity. This is information you should apply even in what may seem like small investments. The same principles can be adapted to anything other than money e.g. investing time. Warren Buffet cites 4 main metrics he uses to weigh whether or not an investment opportunity is worth it. He looks for favourable long-term characteristics, competent and honest management, attractive purchase price with respect to value to a private owner, and it being in an industry he is familiar with and has long-term competence. That is how you should also approach any investment opportunity presented to you.
