Warren Buffett is the world’s richest investor. It will surprise you that most of his wealth comes from investments in what he calls, “Wonderful Businesses.” When you make the right investment decisions, the results can be spectacular and breathtaking. But the wrong investment decision can cause grief and havoc.
As an investor looking to invest in Ghana, do your due diligence before making the investments. Whether it is a financial institution, a manufacturing company, a service-based business or a start-up company, ensure you do your homework before investing in the company.
If you have a pile of cash sitting in your bank account and you’re wondering what company or how to invest the money, the following are key factors to consider before investing in a company. It will not only help but save you from wasting and losing your hard-earned money.
Determine your investing goals and objectives
Consider your investing goals and objectives: Factors to consider before investing in a company
Where do you invest your money and how much should you invest? It all boils down to your goals and objectives. Which industries do you understand and have a passion for? Do you have a long-term investing plan? How does your current financial life look like? Will the investment affect or reduce your standard of living? What is your risk tolerance? How much money can you risk in the investment?
Examine your investing skills
Examine your investing skills: Factors to consider before investing in a company
Investing is a skill. You learn it through practice. The first step to making a good investment is to focus on yourself. Do you know how to read and analyze financial statements? Can you read and understand the financial performance of a company? How good is your ability to analyze investments? You should analyze your investing skills bore taking the next step.
Determine Your Area of Competence
Define your circle of competence
Warren Buffett says you need to define your “circle of competence” before embarking on any investment journey. Your circle of competence revolves around industries you understand and have a tremendous passion for. Define your industry and select the companies that are profitable and have long-term financial value.
Analyze the business and the industry
Analyze the business and its industry
As Warren Buffett would say, “Never invest in a company you don’t understand!” Also, make sure you understand the business’ structure. Read all you can about the business you want to invest in. Get their annual reports and read. Look for industry and SEC reports.
Ideally, you do not want to invest in a sole proprietorship type of business. These businesses expose managers and investors to the liabilities incurred by the business. Rather, look for a well-run limited liability company that you understand and has a passion for.
Analyze the past financial performance
Analyze Past Financial Performance of the Company
It’s amazing a lot of investors invest based on assumptions, feelings and family relationships. Most investments made on these decisions usually become investments gone bad. If you really want to do well with your investment, then you have to get the facts—the real facts—of the company.
Look for the financial statements of the company. Look at the stock’s performance. Make sure you know about the financial performance of the company. Examine the asset, liability, income and expense structure of the business. Analyze their past three-to-five-year financial performance to have an overview of how they might perform. You will save yourself a lot of trouble if you do your financial review.
Determine your exit plan for the investment
Define your exit plan for the investment
What is your exit plan? How much do you project to make and when will you make that amount of money? Can the company deliver those returns in the time you set? Have you calculated your return on investment? Before you get started, know how you will receive your investment earnings. Will it be through dividends, stock buybacks, or any form?
Get proper documentation of all your investments
After you determine the financial performance and decide on investing in the company, make sure every transaction has a written-document and signed. If possible, invest with the help of a corporate lawyer. Make sure all cash transactions have accurate and legal documents. When you take time to do your due diligence, the investment would yield better fruits and you won’t have to shed tears in the long run.
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