Articles

Invest In What You Know

Wealth Tactic 11

by Rick Webster (Investor Relations, 37th Parallel Properties)

It may seem obvious, but investing in things beyond your scope of knowledge and expertise is risky. In spite of this, it’s all too easy to find ourselves attracted to new ventures outside our realm of experience.

Partly, it’s the “grass is greener on the other side” phenomenon. When something new is first introduced to us, we often see all the glitsy surface characteristics while glossing over substantive flaws. It is at this stage of knowledge (or lack thereof) that investors will make their biggest mistakes, primarily because they are not fully aware of the risks before they invest.

Risk increases exponentially as we stray into areas we’re not fully versed in.

Becoming wealthy is as dependent upon controlling risk as it is about obtaining high returns on our investments.

The old adage of “invest your time before your money” is important to remember before you make any investment. Noted investor Peter Lynch asserts,” He who turns over the most rocks, wins.” Indeed, whether it’s your primary field or if you’ve paid professionals to do your research, it takes time to accumulate the knowledge base required to make informed decisions.

It is also important to note that HOW you perform your research will have a direct influence on your success – especially in Real Estate. Most amateur investors look to the property first and then decide if the area is acceptable. The most successful investors look at the area first before even considering any individual property.

We at 37th Parallel take this concept (Market before Property) very seriously and apply it to our investment analysis. Before we even consider buying a property, we throughly investigate all information available regarding the geographic area. While we could invest anywhere in the country, we only invest in areas that meet our predetermed set of parameters.

Areas with high appreciation and fancy buildings may seem attractive on the surface but in looking deeper we often learn that their value is predicated on hope and the “greater fool” theory. This concept (the hope that a greater fool will come along later to buy it from us) just isn’t a good way to predictably build stable wealth. Our parameters seek out the true value of a Real Estate Market and lead us to decisions based on solid investment concepts.

Once we’ve determined that an area meets our criteria, we then move to investigate individual neighborhoods and streets. This is the “micro-location” aspect of investing in Real Estate. Lastly, we consider the property itself. By applying the necessary amount of research and the right analysis approach, we are able to get quality investments despite national real estate trends.

You can apply these best practices to Real Estate Investing, or to any other type of investment. The bottom line is this: By investing in an area where you do not have a thorough knowledge base, you are taking unnecessary risks that will negatively impact your investment returns. The investment world is very competitive and full of informed individuals. Whether you gain the knowledge you need to succeed personally or through trusted advisors, you must manage risk through knowledge if you plan to become wealthy.

Remember: Victory goes to the best informed!

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