What is your EDGE? In other words, what is it that you know, that nobody else knows about your potential investment? This question will help you be clear about the real reasons you want to invest. If you really have an EDGE, it will be obvious. If you don’t and it’s just a “feeling”, that will also be obvious.
Of course, it’s very important to be clear about what type of investment you’re making. I categorize investing in 3 different ways:
#1 – Traditional investing. This is the hands-off approach most commonly associated with a solid financial plan as prescribed by my financial planner in San Diego, Dan Osgood. This method is when you put money into a well-diversified investment portfolio on a regular basis to dollar-cost average and accrue over a long period of time. You don’t need an EDGE for this form of investing. The EDGE you have here is the time value of money.
#2 – Trading. This is where you buy a security such as a stock, in the hopes it will go higher in a relatively short period of time. You can also bet the stock will go down by “shorting” it, but the idea is the same. It’s the expectation of a short term move in a security for whatever reason. For this type of investing, you need an EDGE. If you don’t have one, say buh-bye to your money.
#3 – Speculation. You might think 3-D printing is the wave of the future, and I would agree with you. So, you invest in a 3-D printing stock like DDD with a small amount of money that wouldn’t crush you if all was lost. You hope that over a long period of time, your thesis will be correct and ultimately you will get a huge return on your investment. With this, you don’t need an EDGE because you should be using such a small amount of money it can be equated to buying something like a lottery ticket. Small risk and huge reward potential.
Make sure you know specifically what type of investment you’re getting into long before you pull the trigger. If you don’t have an EDGE and it’s not a speculation, then something is wrong. Of course, if you have a great financial planner in your corner like I do, he’ll help a lot with these things.
Today’s Mr Credit Radio podcast: