What does it take to say no?
As an investor, you are more likely than not to have been in a situation like this:
You are listening to a presentation of a company that you are interested in.
The CEO is making his pitch and it is tempting. The business model sounds fool proof and you are on the verge of buying equity in the company.
But is it a good idea to buy just when you’ve listened to a presentation with a CEO?
Of course it is not. As always, you owe yourself some due diligence before making any investment decisions.
That is why I advice you to wait a week before buying if you’re tempted. If by then, it’s still a good proposition then buy. Otherwise you say no.
As famous investor Benjamin Graham once said:
Every investment decision should be taken with safety of principal and a good rate of return in mind.
In the example above, the safety of principal is to say the least dubious.
There is simply no guarantee that you will be able to get your money back if you invest in an “interesting startup”. Additionally, the rate of return will almost certainly be non-existent in a speculation like this.
You don’t want to go there.
You need to take an ice cold look at the prospect and not letting your feelings run high.
You need to carefully analyze the investment proposition looking at different key numbers from both the company in question and competing companies.
One thing that is extremely important is the earnings where a good investment is characterized by solid earnings. It makes no sense to invest in a company that is loss making.
If you after careful analysis come up with a negative outlook for the company, then you owe yourself to say no.
The more you look at different companies, the more experience you will acquire.
What that means is that you will look at many investment propositions before finally acting on one or two.
You will then be more secure in your decisions and not waste any money on useless propositions.