Top Signs You Should Go Big On an Investment
To go big or go home ... Isn't that always the ever-pressing question? There are times when "going big" is the obvious choice, such as on Thanksgiving day when you give yourself permission to eat as much as you want, or in Vegas when you're on a winning streak and have yet to reach your gambling limit. However, when it comes to everyday situations that could affect your finances and quality of life, losing control could mean losing it all. One such situation in which you want to maintain maximum control without missing out on any money-making opportunities is when you're dealing with investments.
Investments are fickle things, with some more volatile than others. It makes sense, then, that you would want to hold back a bit and take the "wait and see" approach. However, if you wait too long to invest in a good opportunity, you may miss out on it entirely. Therein lies the trouble. How can you spot a good investment early on, when it still poses plenty of opportunities, and invest big without fear that you will lose it all? Though there is no guarantee of success, there are a few signs that point to good things ahead.
The Product or Service Has a Durable Competitive Edge
Everyone needs screws, and everyone knows what snuggies are. Yet, neither is a good investment. Why? Because, while screws are necessary for building things, very few people are familiar with the brands that make or sell them. And while everyone remembers the snuggy, most remember it as a passing fad. A good investment strikes a nice balance between the tiny bit of hardware and the sleeved blanket--it has durability like the screw and a memorable (possibly even revered) brand behind it, or the kind of brand that drives loyalty.
Products or services about which people can get excited and that consumers will continue to need long into the future are the kinds of products that generate sustainable cashflow. Not only that, but they can net higher prices, which enables the brands behind them to grow, innovate and market more, all of which generate even more profit. This cycle is likely to continue and generate wealth for individuals with the wherewithal to stick around.
There Is No Question About Where the Company's Profits Come From
If you cannot explain in just a few sentences about how a company makes a profit, you should steer clear. Not only should you not seek ownership in a business you do not understand but also, you should be wary of those whose owners cannot even clearly articulate how the company makes money. You should be able to articulate where, exactly, the money comes from (the sale of a product or service, for example) and discuss major cost outputs (the cost of materials, labor, etc.). If you cannot do both, do not invest.
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The Company Has a Strong History
"Strong" does not necessarily mean long, though longevity doesn't hurt. If you plan to invest in stocks or the ownership of a company, look into the company's background. Does it have a history of treating employees and customers right? Does it give back to the community? Has it been more profitable than not during its lifespan? The answers to each of these questions can be an indicator of what to expect from the company in the future.
Though there are several ways to determine the viability of an investment, the above there are typically strong performance indicators. If you're thinking about going big, at the very least assess the offering's competitive advantage, make sure you understand where the profits come from and review the company's history.