Welcome to the 144th episode of the Alternative Investing Podcast!
In today's episode, I'm going to discuss how you can create your investing rules and non-negotiables so you can climb ahead of the competition and protect yourself against fraudulent schemes.
If you want to make profitable investment decisions while outsmarting scams, then make sure to listen to this episode!
Do you believe everyone's out there to get a competitive edge in investing?
Well, I do.
But since there are only a few assets to invest in and ways to do it, it can be difficult to be unique and stand out from the crowd.
If you’ve listened to my podcast episodes before, you’d know that one of the reasons why I love alternative investment opportunities is that they’re not as popular and efficient as other types of investments.
This is good news if you're a smart investor because you can find more opportunities to get ahead of the competition.
Now, the problem with any kind of investing where you rely on someone else's expertise is that you don't always know if they're trustworthy or if they really care about your money.
For example, if you rely on someone else's expertise for investing, like attending a seminar, using a buyer's agent, or giving your money to a stockbroker or financial planner, you may not know if they are truly looking out for your best interests.
They might just be trying to sell you something instead of genuinely helping you make the most of your money. Because we can't always verify their past deals and track record, it can be challenging to know how successful someone is at investing.
Yes, they can tell us how well they've done, but we can't always check if they're honest about the details of the deals they're presenting.
One of the things we're most afraid of is being tricked or giving our money to someone who talks a good game but doesn't know what they're doing or, even worse, is trying to cheat us.But if we're careful and take our time to invest with people we know, like, and trust and who have a good reputation, we can reduce our doubts about their character.
We can talk to individuals who have worked with them and ask them about their track records and investment strategies. We can also ask them detailed questions about how they choose investments and how much research they do before investing.
If we do our due diligence, we increase our chances of making successful investments and stack the odds in our favour.
In today's podcast, I want to discuss two sides of the coin.
On one side, we seek a competitive edge; on the other, we also worry about being cheated or tricked into investing in something that won't give us our desired results.
Bernie Madoff's Ponzi Scheme
If you're interested in finance, you might have watched a four-part mini-series on Netflix about Bernie Madoff.
It's not really a documentary but more like a fascinating movie about his life since he began working for his father-in-law. Some people believe that Bernie Madoff's scam was recent, but that's not true because the documentary shows that he has always been deceitful and had big ambitions to prove himself.
It was interesting to see that his scam lasted over four decades, and as the Ponzi scheme grew, more experienced investors who knew the basics of investing were attracted to it. Unfortunately, they were too scared to ask questions about the investment strategy or to see it in action.
They theoretically understood how it worked but didn't ask for proof or specific details.
Sometimes, Madoff would tell them to invest elsewhere if they didn't trust him, and he would set conditions like investing a certain amount of capital.He took money from many people, including big hedge funds, royal families, private investors, and even regular people who needed it for retirement.
His scam continued for a very long time until it finally fell apart during the global financial crisis.
In the context of Bernie Madoff's story, I want to highlight that some smart people who invested were afraid to ask questions and investigate further just because they didn't want to miss out on what they thought was a great opportunity.
FOMO makes people focus on short-term gains, so if you understand that many investors make decisions based on fear of missing out, you can start thinking differently.
If you look at the habits of wealthy people, you will see that most of them think long-term and don't get distracted by short-term gains. Unlike those who invest based on current trends or for a quick profit, they look for sustainable investments that can produce good results over many years, even decades.
If you would ask the world-class investors I look up to, you'd know that they find the Bernie Madoff story amusing because they would never have invested with someone like him.
My Colleague's Interaction with Bernie Madoff
Let me tell you about a colleague of mine who once met Bernie Madoff in person. He was a successful hedge fund manager then and wanted to know more about Madoff's investment strategy.
So he asked Madoff and his associates to explain the strategy and show how it worked, but since Madoff refused, he didn't trust him and left the meeting immediately.
Just a few weeks ago, I invited this colleague of mine to present to our community and show how hedge funds and institutions do research before investing in any asset.
He illustrated how they go deep and spend much time looking at all the details.
Now for regular people like us, it's hard to do that kind of research because, like hedge funds, we don't have a whole team of people to check out deals the way they do.
Coming Up with Investing Rules and Criteria
So, how can we compete?
Over the weekend, we discussed coming up with a list of non-negotiables.
I've talked a lot about the importance of having rules when investing, but the best way to protect yourself and stay ahead of the game is to have a list of questions you won't compromise on.
Right now, the market is uncertain, and many potential problems are on the horizon.
There could be wars, recessions, high-interest rates, high inflation, and conflicting economic signs. So, we must determine what's important and focus on those things.
In our community, we came up with a list of criteria we won't compromise on.
Some things that might have been just "nice to have" before are now absolutely essential in this environment.
Last week, the main point of the presentation was that you need to create a set of rules to quickly understand what you're investing in, whether it's traditional real estate, shares, or alternative assets.
Obviously, the rules for each of those asset classes are going to be different.
For instance, if you're investing in an alternative real estate deal, you'll need to ask specific questions to understand the investment as much as possible.
Many investors tend to decide quickly to invest based on limited information before taking big action.
When looking for investment advisors, I want to find people who share my values and who I can work with for the next few decades.
By asking them all the important questions upfront, I can build a track record with them over time.
This way, if I want to invest more money with them in the future, I won't have to go through the whole process all over again.
I'll already know their values and how they do business, which makes me focus more on the current market conditions and the opportunities available.
Do I think there are still opportunities for buy-and-hold real estate? Absolutely.
But it's important not just to buy something because you have the money, can get financing, or because it made sense in the past.
Instead, you should have a high standard for your investment criteria so you're more guided to look for assets that are likely to be successful when the market shifts to the next part of its cycle.
My Approaches When Investing This 2023
In summary, to be a successful investor, you need to focus on the long term and avoid making decisions based on fear of missing out or trends that might not last.
The key is to have clear investment rules and non-negotiables specific to the current market.
Let me share some of my approaches when investing this 2023.
One of the first things I want to know is the investment structure.
Will I have direct ownership of an asset, or will my money be used by someone else who will be in control?
I'm also interested in knowing about exit and entry strategies.
If the market goes bad, what are my plans A, B, C, and D? I want to know their track record and who gets paid first, second, and third if something goes wrong.
I also want to ensure that the investment isn't dependent on just one person. What are the other options if someone in charge of the deal falls over?
Lastly, I want to know about the underwriting process and how assets are selected.
All these are just a taste of what I'm thinking about when it comes to creating more certainty around the investments I choose to make.
When considering an investment, I highly regard a person or a company's openness and transparency.
I'm wary of marketing materials that make something seem really attractive but don't provide much data to back it up.
At the end of the day, building a know, like, and trust relationship with the person offering the investment should be a non-negotiable for me. Just because someone seems charming doesn't automatically mean they can be trusted. Trust should be earned and not assumed.
Always remember, doing due diligence will give you peace of mind when investing and equip you with the tools and experience needed for long-term success.