What to watch for when considering new investments?
The internet and data age has led to a proliferation of information being available to every investor from the experienced to the first-timer. This has seen a spike in finance and investment scams but also both high- and low-quality investment opportunities being made available directly to consumers, passing the due diligence risk to the buyer.
After decades in the industry, there are a few key characteristics that tend to stand out and are best to look out for when assessing these new and emerging opportunities.
The first, which has become more common in recent years is the prevalence of storytelling as opposed to cold hard facts and data. This has been highlighted by a growing number of investors in recent months, as the stories and themes behind many profitless technology companies reversed. Storytelling has been central to the passing of information over time but is also a powerful tool to gain support for unique, forward-looking concepts.
Whilst understanding thematics and secular trends are important, these can end up being more cyclical than we appreciate requiring the need to be flexible. The most important factor when making an investment is a real track record over multiple cycles, not the quality of a story.
Storytelling extends to the broad associations with other successful investors, and that is using the quotes of other experts to explain one’s own philosophy. There are millions of people who claim to invest like Buffett or Graham, but only one Buffett and one Graham. Quotes are great to provide context and support to an appropriate, but successful investors have their own approach that they adhere to, not copy others.
Investing is a long-term game, that requires both patience and flexibility to see the real benefits of compounding returns. There is a growing trend toward more restrictive terms, that is, longer periods for redemption, and waiting periods, which whilst suitable for some asset classes and investments, remove the optionality for the everyday investors. Every investment should be seen as a 3-year investment, otherwise, it is speculation, but being forced to lock in said terms is likely excessive.
As it has been in business for decades, knowing what you are good at and focusing on that, and only that, is central to success. This is even more important when it comes to investing. Every investment must have a clear mandate, investment target and purpose, but most importantly have a strategy that allows them to leverage their unique skillset. The process required to manage large companies, small companies and private ones is extremely different and, in my experience, the lack of a specific niche can impact long-term direction.
The final one is the quality of partners of any investment. That is, which brokers do they deal with, which custodian do they use, which administrator, unit trust registry or bank provider. Similarly, have they partnered with platforms, advisory firms and other groups. Whilst no guarantee of success or safety, it is worth considering.
