29 Jul Favorite Investments
Everyone has their pet projects. For some with a little extra money to burn “investment” could be used very loosely. Not that one can’t make massive gains by investing in things like art, but the reality is such things never produce the cash flow of a typical investment and the wins are usually binary—that is you either win or you lose. I hate to lose. Hence, I generally take a more pragmatic approach to investing: I don’t dabble in games where I know my chance of losing is higher. In short, “sticking to the rivers and the lakes that your used to” is good advice.
Staying 100% safe isn’t possible. You have to put capital to risk at some point. When gauging investments outside the paper assets of the general market, I typically have a few solid parameters that I use, namely:
1. Will the asset remain? Does it have staying power? I don’t like to be gloom and doom, but I like hard assets that will be around even if all hell breaks loose, the markets drop precipitously and the world ends. You should be able to draw conclusions for what type of assets would fit my strategy. Some don’t, but it’s still not a bad idea to keep the asset rule in mind.
2. Is is scalable? If the asset doesn’t pass the test from #1 above, it has to have the potential of scalability. That is, if the asset could be stripped away in a paper money fall-out, would the scalability of the idea make up for potential losses? Typically I ask these questions when investing in digital assets.
3. Does the investment cash flow? In today’s high risk, low return market, every investor is buying into cash flow streams from just about every angle they can find them. Just like everyone else, I prefer to find investments that provide some stability in terms of the amount of cash they are regularly kicking off on a monthly basis. That’s how investors value property and business assets. Buying “potential” is out of the question these days.
If the purchased income stream produces regular and predictable cash flow, then it’s that much more desirable.
4. How sustainable is the product/service? There are a number of flash-in-the-pan ideas and investments. Past performance doesn’t guarantee future success. Buy and hold strategy only works if the foreseeable returns of an investment will continue in a sustainable fashion ongoing into the future.
5. Do I understand the market? If I don’t have experience or know someone who directly has in-depth experience in the particular market I’m being pitched, I back away. Lack of understanding and lack of knowledge is the fastest way of being duped. Spreadsheets more easily lie when it’s difficult to decipher the business jargon underneath. Again, stick to the rivers and the lakes that you’re used to.
6. Can I make money on the buy? As most strategic investors will tell you, money is always made on the buy. While many would consider buying on the cheap a zero-sum game (I only win when you lose), there are many opportunities to have a win-win when buying on the cheap. The seller wants to rid themselves of the assets, while the buyer is looking to get them on the cheap. Warren Buffett’s strategy during the market meltdown five years ago is indicative of a “buy low” mentality. There were a ton of assets available for super cheap when panic ensued.
My Favorite Investments
When it comes to investing, I have a few pets that I like to go after. Here they are, in no particular order:
- Hard Assets. Things like gold, silver, precious metals and real estate. Real estate in particular, especially when you can make money on the buy (#6 above), the asset can be an excellent passive money-making investment proposition for you for many years. While gold and silver fails to satisfy rule #3 above, it provides security by satisfying my #1. In addition, it’s just a piece of the a fully holisitic and diversified investment strategy.
- Digital Property. What can I say, I invest in digital property. Domains and web-based content have value in that they can help to drive traffic for an idea and/or sale. Some have argued domaining is dead, I completely disagree. Companies like Donuts.co and other are investing millions in the next digital land grab of .custom TLD extensions. Unfortunately, the 1999 days are behind us–when domains themselves made the business. However, careful strategy, coupled with superb content and a winning product/service is best executed with an awesome domain. Awesome domains and awesome content costs money, hence the need to invest.
- Businesses. Longstanding businesses with regular and predictive profits represents one of the best returns one can make. Many investors simply don’t give any credence to individual, private businesses, but whilst the breads are dying everywhere, there are still great profits to be squeezed from even the local, small well-known companies we regularly frequent.
Investing is so often a numbers game, but not in the way most salespeople would see a “numbers game.” Understanding how a strategy will drive the profits of a business and how management plays a key role in the success of the enterprise as it takes it products and services to market is a key component of assessing the eventual success of any venture. Finding the ROI of your little pet projects, can be a bit more difficult. Some can take years to recognize a return in the real sense of the word, other investment opportunities are quick and rapid. It all is dependent on strategy–both of the investor and the opportunity. Aligning those goals, objectives and strategies is perhaps the most difficult aspect of making a massive windfall.