26 December 2017

What To Look For In An Investment?

what to watch out for before you invest?

Investment is NOT risky!

Most of the time, when people hear about the word "INVESTMENT",  first word that goes into their mind is "RISK".

However, one of the most famous quote by Warren Buffett is "Risk comes from not knowing what you are doing!"

Easier said than done! How do we know that we already knew about the risk we are getting into?

Well, let me share with you 2 simple factors that I look for in an investment:

  1. Does this investment gives me capital gain in the long run?
  2. Does this investment gives me cash flow?
I shall further elaborate to you on this 2 factors:

Capital gain in the long run

Due to the scarcity of resources (i.e limited of land in the example for real estate investments), we know that over a long period of time, prices for properties will appreciate.

Therefore, in the long run very likely you will enjoy capital gain for your real estate investment as well as stocks if you buy them at the right price.

Cash flow from investment

While waiting for your capital to goes up 2x, 5x or even 10x, you need cash flow too!

For example, if you bought houses and rented them out, you will have cash flow in the form of rental. If you bought equities and hold them, you will have cash flow in the form of dividends!

So, when both of these investment becomes over-valued due to market's sentiments (nobody knows when though), not only you get to keep the cash flow that you have collected over the years, you get to enjoy your 2x or up to 10x capital gain from your original capital investment!

Otherwise, you would also be far better off if you choose to reinvest those cash flow!

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