In the world of investing, opportunities come and go. It is a good practice to diversify, but it doesn’t mean simply investing in assets of different classes. The key to becoming a successful investor is by knowing how to recognize a great investment opportunity through accurate analysis. In this article, we would be focusing on 10 crucial points that an investor needs to consider when evaluating investment opportunities.
Crucial Points When Evaluating an Investment Opportunity
Security vs Growth – Decide whether you would prefer security over growth or vice versa. Usually, secured investments could offer less capital growth, while growth investments have a higher risk level involved than that of a secured investment. From there, you can start looking for an investment opportunity for your chosen kind of investment.
Market – Before starting an investment, make sure that the market you are entering has potential for growth. Analyze the current demands of the said market and make sure that the industry for your prospect asset is currently flourishing.
Opportunity window – Ask yourself, “is this the right time to invest?”. The answer may depend on the first key point. It may also pertain to the current price value and market reports regarding the prospect investment. Is it best to invest today? Are you not too late? Or how long would this opportunity window be open for investment? Make sure to identify the answers to all the said questions and determine the best time to enter an investment.
Exit points – Nobody could predict the market. You may try to completely evaluate an investment, but there could always be a chance that things may not go the way you think they will. Always prepare an exit point for unforeseen cases. You would need these exit points in order to mitigate possible losses that come with failed investments.
Returns – All kinds of investments have their corresponding risks. However, make sure to analyze whether the returns that you could potentially get from an investment is adequate relative to the risks it comes with.
Risk – identify the risks that come with your investment. Evaluate your comfort zone and know up to which level you can tolerate. You can also use this data when setting up your stop loss once you enter an investment.
Time value – Some investments result to good potential profits, but with greater risk. Determine if you prefer these profits over secured investments, which could generate fewer profits over time. You can also compare potential returns for a given time range with other investments to see which is best for you.
Growth potential – Analyze if your investment still has potential to grow, and the range up to which it can reach. Consistent growth that comes from marketing strategies and management is generally better than a one-time spike in value because of hype-causing market news that usually returns to normal after a while.
Avoid fraud – In the market, there are a lot of fraudulent headlines that are released to manipulate market prices. Make sure to check from unbiased news sources before you invest. Do not listen easily to news that usually results in an increase in price value. Do your research before making a major investment decision.
Price – Even great investments can result in a loss of money if you pay too much for the deal. Make sure to invest only when the price is reasonable. Fortunately, the market usually goes through a series of ups and downs. You can use this behavior of the market to enter an investment at a discounted price, and selling off at a higher price point.
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