How to Spot Good Investment Opportunities
When it comes to sound investment opportunities, ultimately they all boil down to a simple equation – they either make you money, or lose you money. Being an investor is a risky business, but that’s partly what makes good investment opportunities so lucrative. It’s all about weighing up the risk and the reward, with more of the former usually equalling more of the latter if the investment comes off. However, if you’re going to avoid the bad deals that could very easily wipe you out, then you need to build yourself a set of guidelines, and then follow them to the letter.
Your first enemy is complacency. It’s very easy to spot an opportunity in a seemingly reliable market, and kid yourself into thinking that it’s a license to print money. Always remember that no company, group, or sector has a divine right to consistently high returns, and as such, all investment opportunities must be judged on their own merits. Real estate is a great example – some might say that it’s a safe bet as ‘they’re not making any more land’, but invest at the wrong time and you could lose a fortune.
When you’re judging each deal on its merits, the two most important are the time and the price. Regardless of the situation, regardless of the sector, any investment can have good or bad results depending on the timing, and how much you pay. Timing doesn’t just relate to when you make the deal either – it also includes when you expect to receive a return. If you make an investment that you expect to mature in the long term, it’s no good getting panicky if you look like you’re losing money in the short term. Sometimes this is necessary, or even desirable, if the long term pay-off is to be realised.
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When you’re hunting down your next deal, it’s also worth remembering that no matter how good you are with accounting, finance or economics, the key to successful investing is psychology. The principal factor is how desirable the investment is now – if you’re buying into something at the peak of its popularity, it has no room to grow, and you’re only likely to lose money. Smart investors choose to buy into a company, product or idea when nobody else likes it, because at this stage, the price will be low and the investment is easy to secure. As long as you pick something with the potential to grow and improve, you could see your investment multiply in value much quicker than you might expect.