Invest in what you know

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Author of “Practical steps to financial independence and personal finance coach,” Mr. Usiere Uko, writes about investigating and understanding before investing. 

One interesting characteristic of humans is the tendency to complicate simple things. One place this often plays out is in the area of investing. There is a perception that investing is difficult, so to play to that script, we make it complicated. Your objective is very simple – get a return on money invested over time. The foundation is simple interest – whether you are investing in the money market, stock market, business or whatever, you are expecting a certain return after a certain period of time. It could be your money or other people’s money. The objective is pretty straightforward – to make profit.

If you don’t understand what you are about to invest in, don’t invest. It is as simple as that. I saw a quote somewhere that if the investment cannot be explained in one simple sentence, simply walk away.

Many schemes come and go. The one that attracted a lot of interest recently due to press coverage and social media was the MMM. What fascinated me about the MMM was the fact that a lot of the subscribers knew they were signing up to a Ponzi scheme but they went ahead all the same. Some resorted to insulting people trying to offer them advice.  They knew that Ponzi schemes make money by collecting money from new investors to pay old investors. It is a game of musical chairs that is not sustainable, because such schemes eventually run out of a pool of subscribers, leaving the pyramid to crash to the bottom.

Many of such Ponzi schemes are still floating around with fancy names, claiming to solve societal problems. Some decorate their pyramid with skill acquisition training for empowerment. After the training, you can join in building the pyramid that is doomed to collapse because it is running a model that is not sustainable. You are helping the poor by collecting money from them and asking them to go and bring others so that you can also collect from them, sometimes in dollars.

Why would someone go into an investment knowing it is going to fail? This is subject for a whole book. I think greed and desperation are the primary drivers. They know the building is on fire. They were hoping they could get what they wanted out before the whole structure came crashing down. We all know we should not enter a burning building. Does the fact that we saw some people go in and come out safely make it okay for us to go in? We reckon our luck can hold so that we too can come out safely, ‘let me collect my own before the thing collapses’.

Telling someone something is wrong when they already know it is wrong is often a waste of your time. Money and investing is driven my emotions, not logic. If it is logic that drives our money decisions, we wouldn’t see fire and put our hands into it. We would spend less than we earn, save and invest, fix our expenses and grow our savings and investment, stop spending our income on liabilities, rather preserve it as capital and consume our profit (delayed gratification) etc. We all know the right thing to do at some level. Getting to the point where you actually do it on a sustainable basis is where the rubber hits the road.

The gap between the rich and the poor will keep getting wider because the rich will keep doing more of what is making them rich while the poor will keep doing more of what is keeping them poor. So the rich become richer and the poor become poorer. The poor will only become rich when they start to think like  rich people and taking actions that will make them richer.

Investigate before you invest

One thing the poor do when they eventually decide to invest is to go ahead without investigating. They believe what others.

Aside from those who see fire and still go ahead to put their hands inside, there are those who don’t really know. These are folks asking questions if an investment is safe. That is a good question to ask. Investigate before you invest.

Investigating is not as mysterious or difficult as it sounds. It could be as simple as doing a search on the Internet from your phone. Imagine you want to invest in XYZ scheme that gives a return higher than the money market. You can simply go to Google and type in ‘is XYZ investment a scam?’ or ‘XYZ investment scam.’ The results will tell the story. Go through it to find out if it is the experience of actual consumers, or someone asking the question in a forum. There is no point repeating the mistakes of others.

It never ceases to amaze me why I go round in circles for days trying to solve a problem when I can easily ‘Google it’. When I used to customise codes (web template design), I would battle it out for days trying to make it do what I want. After I was worn out and frustrated, I would search for the solution only to find that thousands had the same problem before me, and posted it in a forum somewhere where it was answered. Often, the solution was so simple that I would feel like kicking myself. Why did I waste so many hours trying to figure it out all by myself?

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