Finance 4. What could go wrong? Perhaps the most important question on this list. After you’ve examined the possible upside of the opportunity, it’s time for an honest, eyes-wide-open assessment of the downside. This is where many investors fall short, as the excitement and exhilaration of uncovering a chance to make money blinds them to the risks and dangers inherent in that opportunity. Ask yourself: what risks does this company or asset face? What are all of the things that must go “right” for this opportunity to be realized? What are the possible ways in which your catalyst (discussed above) could be delayed – or derailed altogether? What happens to the opportunity if the economy enters a recession, or if the stock market suffers a downturn? What if management makes a series of value-destroying decisions? What if competition heats up, or the company’s products somehow become obsolete, or if some kind of structural change in the way the world does business suddenly destroys demand for the asset that you’re looking at? Here’s another thing that could go wrong: your excitement could turn to anxiety, as your opportunity leads you into more volatility than you can stomach. Whether you end up making money on it or not, an opportunity that keeps you up at night, forces you to constantly check and recheck your portfolio, or generates a sickening feeling in your stomach can’t truly be considered right for you. These aren’t easy questions to answer – it often requires a bit of homework to uncover the risks and dangers, as well as a good deal of thinking before you can really understand how much risk you’re willing to accept in your quest for returns. But it’s far better to be honest with yourself and think of the potential negative side now. By the time you’re knee-deep into it, it’s too late. 5. Is the timing right? Timing is an issue that’s sometimes overlooked when it comes to investing in a new opportunity. A given opportunity could be perfect on paper but, if uncontrollable economic circumstances are looming on the horizon, or your own personal circumstances interfere with your ability to capitalize on the opportunity – then that changes the investment equation entirely. Ask yourself: is now the right time to buy into this opportunity? Will it still exist tomorrow, or in a few months, or a year from now? Think about the current outlook for the business, or the industry which you’re focused on: are there any immediate changes or disruptions or “evolutions” on the horizon? Are there issues that have been cleared up recently, pushing the opportunity into “high gear”? Or are there challenges that might delay a catalyst and put the opportunity on pause before it really starts making money? Once you’ve thought about those questions, ask yourself whether the timing is right for you: will seizing this opportunity interfere with your ability to pay the bills, cross items off life’s bucket list or take advantage of other opportunities? Will the opportunity demand more of your time, effort and money than you’re willing to give with all that you have going on right now? At the end of the day, no one has a crystal ball and it’s darn-near impossible to tell if the timing of any given investment is “perfect.” But the exercise is still valuable; giving some thought to what might make timing ideal (or less so) can help you zero in on some of the factors that will lead to the opportunity’s ultimate success. 28 | www.snowbirds.org
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