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By Dakota Findley
Special to the Financial Independence Hub
If you learn how to spot investment opportunities early, you could significantly increase the profits you make. Fortunately, doing this isn’t as hard as many people believe. Here are the ten essential components of spotting investment opportunities before everyone else jumps on the bandwagon.
1.) Find a Problem Solver
In 2009, Professor Raffi Amit of the University of Wisconsin noted that “Customers don’t buy technology. Customers buy products that add value.” These two sentences are vital to understanding which investment opportunities are worth pursuing.
An effective problem-solver is a company that:
- Has identified one or more problems that a potential market is experiencing,
- Has a plan, product, or service designed to address that problem, and
- Can implement their solution in a scalable and cost-effective manner
In other words, you’re not just looking for companies to invest in: you’re looking for businesses that will be selling what customers are looking for.
2.) Learn to Understand the Criteria for an Investment’s Success
A 2011 study found that firms receiving angel investments (capital provided mainly for business startups) were about 25% more likely to survive for at least four years than companies that did not receive such funding.
The reason this fact matters is that a good early investment is one that gets enough funding to succeed. If your investment isn’t sufficient to help an opportunity succeed and nobody else is buying in, then it doesn’t matter how good their ideas are.
3.) Assess Your Risk Tolerance
How much risk are you willing to take on? We’ll be blunt with you: many early investments fail. Perhaps they didn’t get enough funding to succeed, or they suffered from poor management by people who were good at making products but not so good at running a company.
Whatever the reasons for failures, though, you’ll need to learn how to ass ess both how risky a given investment is and how much you can afford to lose.
As a good rule of thumb, you should never invest more than you could safely afford to lose.
4.) Practice Patience
We all want to dive right into successful investments; after all, the earlier you get started, the higher your returns are likely to be for a successful investment.
That said, don’t rush into investments just because you think you see an opportunity. It’s important to take the time and perform your due diligence in checking out the opportunity. Similarly, you shouldn’t be looking to invest all of your funds right away – having some on hand to invest in upcoming opportunities is also worthwhile.
5.) See what’s already hit bottom
If an industry has already hit bottom, it can only get better from there; assuming the industry will still be around, of course. This fact is why many of the most successful investments are in industries that are currently in a bad spot and need new funding. With the right paradigm shift, they can roar back and generate rapid returns on investments.
6.) Diversify
In any given portfolio, diversification is a vital part of mitigating risk and improving your overall returns. Put bluntly, you can never be sure that an investment will work out, and if all of your eggs are in one basket, you’ll be in trouble.
Hedging your bets and diversifying your investments across other fields will help you balance things out. More importantly, it will also help you get away from the crowds of people in popular investment areas. With less competition, you have a better chance of becoming the investor a company is looking for.
7.) Keep an eye out for Scams
In a perfect world, every investment opportunity would be legitimate ; but scams still exist, and some are designed specifically to target investors like you. Be alert for:
Unrealistic promises about when or how much money you could earn
Companies that lack legitimate credentials
Attempts to force obligations (such as providing you with ‘free’ things)
Any effort to rush you into a hasty decision
Statements that ‘everyone’ is investing in them
8.) Get personally involved
Some investment opportunities require more than just providing funds: they need you. Personal involvement above and beyond investing can be an effective way of helping companies succeed. Some ways to do this include:
- Mentoring the company’s employees
- This isn’t limited to owners and executives. If you or someone you know is an expert at marketing, try mentoring their marketers. If you know how to hire talent and help a company successfully integrate a much larger team, help them with that. You’re good at something, and that expertise may be just what they need.
- Promoting their company to others who could help them succeed
- Promoting their company to customers (if customers know who you are)
- Seeking out new opportunities for them to investigate
9.) Gather Information
Information is a vital part of making a wise investment. A lot of information is available for free, but options like paid survey sites can help you quickly gather thoughts, opinions, and other kinds of information from the market you’re trying to reach.
Note that this is most effective if you have a lot of capital you want to invest. If you’re looking to invest $250,000, spending $2,000 on research first isn’t a bad idea. If you’re working with smaller amounts, you may want to look for other sources of information about a given opportunity.
10.) Open new markets to existing products
Some of the best opportunities come from taking existing products and ideas to new markets. With the rise of globalization, it’s possible to sell physical products and digital services across most of the world in relatively short order, and tapping these previously-unreached markets could provide more reliable results than new, untested ideas do.
There’s no one secret to finding high-quality opportunities for investing before others do. As long as you keep these ten principles in mind, though, you’ll be in the best position to find, analyze, and take advantage of the opportunities that show up.
Dakota Findley is a writer at www.surveyssay.com. His particular passions are in cost efficiency, investing, marketing and maximizing productivity.
