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“Yo dawg a PS4 is a great investment.”
“DUDE! A Gucci bandana is a baller investment!”
“A college education is the best investment you can make!”
People keep using that phrase “great investment”, but I don’t think they know what it means.
There are plenty of investment opportunities out there; stocks, bonds, real-estate, cryptocurrencies, art, collectibles and more. All investors want the most bang for their buck. That’s the whole reason we get into investing!
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Right now is a splendid time to enter into the investment world since many markets are tanking. There are a gazillion things to invest in, but not all of them are opportunities. For those newbie investors out there, here’s a list of 4 qualities to look for in an investment. Remember these when the market completely crashes!
1. Great Investments Solve a Problem
The BEST investments solve a problem. Don’t believe me? That’s fine.
Just think about Grubhub, Postmates, or Uber Eats. Thousands of people love staying in their beds and binge-watching Netflix. No one wants to leave the cozy, warm comfort of their blankets to go out into the frigid tundra of the outside world for food. That’s where these companies shine, and they don’t just help the customers. These companies help restaurants reach a wider population with their services.
When evaluating an investment opportunity of time or money, ask yourself if the project solves a problem. If the investment doesn’t solve a problem then it’s probably not worth the time, effort, or money. Look for something else.
2. Great Investments Have a Long Term Future
Good, great, and superb investments are long term plays. They’re not “get rich quick” or “get rich easy” schemes like many multi-level marketing programs.
Ever heard of Netflix? The answer better be “Yes” because it was in my last example. Netflix’s stock IPOed at $15. Those who saw the enormous future of the internet and its potential invested accordingly. The stock is currently trading around $326.67.
Do you know who didn’t see the potential of Netflix and the internet? Blockbuster. They thought it was a tiny, niche business. Well, we all know who was right.
Again, if you’re looking at an investment ask yourself what the project will look like in 5 years, 10 years, 20 years. If the project or organization has the potential to scale and still help people, it’s worth researching even more.
3. Your investments should be simple to understand and explain
This one is a little more subjective. Maybe there’s an exciting new artificial intelligence company that you believe is going to make unbelievable gains because you’ve read through their research and it all makes sense. Logically, you may consider it a worthy investment. On the other hand, Dave who’s a Michelin Star Chef doesn’t know anything about that field so it’s a terrible investment for him. Dave should NOT invest only based on your research. Similarly, you shouldn’t invest in Cutco knives because Dave loves them.
Simplicity is king. If you do not understand how the company, app, or project adds value then don’t pursue it. The purpose of an investment should be able to be summarized within 3-5 sentences. If it can be and you still don’t understand, move on! There are plenty of investments in the sea.
4. Price Does Not Determine the Quality of an Investment!
One of the dumbest investments I’ve ever made was in penny stocks. I just kept looking at the potential return and fell in love with a pipe dream.
DON’T BE LIKE ME!
Price does not dictate a good investment. Just because a piece of real-estate is cheap doesn’t mean it’s going to rise in value. Contrastingly, maybe a house just rose up to $100,000 in price, you don’t think it’ll continue to shoot up, so you wait for a drop. You were wrong and it continued to skyrocket.
Price doesn’t equal value.
Price is just what the seller believes the market will pay for it. Low prices aren’t good or bad, same with high prices. We just use price as a heuristic; we associate low prices with mediocre quality and high prices with spectacular quality. Be aware of this and don’t fall victim to it!
Consider all the other factors before throwing your money at the investment.
Conclusion
Want to make money or lose money? Dumb question, I know.
To grow your wealth and make fantastic investments make sure you look at the whole picture. This means that you ask the right questions:
- Does this investment solve a problem/provide value?
- Where will this investment be in a few years?
- Do I understand how it can serve people?
Definitely start here and then dive into the financial aspect of things. If the fundamentals look good and the financials look good, you might just have a magnificent investment on your hands! Who knows it may even be a better investment than a PS4, a Gucci Bandana, and a college education.
