Do You Understand the Investment Adequately to Make Your Own Decision?

Do I understand this investment enough to move forward?
Do I understand this investment enough to move forward?

Understanding a prospective investment is critical before taking the plunge.  And yet, most people make investments everyday that they don’t understand at all.  We’re continuing our discussion on the important questions to ask yourself when doing due diligence.  Today’s might point to the biggest reason most people do so poorly in their investing careers.  You must understand an investment before moving forward with it.  Why will it work?  Why might it not work?  How will it work?

After you’ve asked yourself the question, “Do I understand this investment well enough to move forward?”…. you’ll either answer Yes, or No.

If the answer is yes, then move on to the next question, you’ve got the right answer for this one.  If the answer is no…then you’ve got a decision to make.  First of all, you should never move forward with an investment without first understanding very well how, why, and when it will work.  So if you don’t, your decision is….

Can you (or do you want to) study or do more research so that you can understand this investment?  Or would you rather move on either because you don’t think you’ll ever really understand it or because you would rather not gain sufficient expertise in this area to move forward.  The choice is yours!

But never make an investment that you do not first understand.  This will save you from a tremendous amount of trouble and heart ache.  From time to time, you might meet someone pitching a really amazing and sophisticating investment.  They might seem so smart that the idea just can’t lose.  But if you can’t understand exactly what it is, how it will profit, and why….then you should move on.  The snazziest of presentations should never change that.

One of the most famous of all investors Warren Buffett who manages billions of dollars won’t invest in a company unless he understands their product and how the whole corporate profit system works.  If this man who controls billions and has many brilliant people at his disposal to help him in any area, won’t move forward with something he doesn’t understand, then perhaps you shouldn’t either!

This is Part 10 in the series Investment Due Diligence. To continue with this series, click on Pt 11. To use this as a growth tool to better understand your own calling, you might start by reading Part 1, Pt 2, Pt 3, Pt 4, Pt 5Pt 6, Pt 7, Pt 8 and Pt 9.

Photo credit: epicfailer; oh how I’ve missed you!!

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