Financial Analyst, Andrew, Dale discussed on Conscious Millionaire Show ~ Business Coaching and Mentoring 6 Days a Week
Achieve. I WANNA HELP. People avoid making investment mistakes and all the pain that they feel from that so I want them to avoid well. That leads actually right in today. Andrew as a financial analyst has analyzed ways that people lose money some painfully. 'cause you try them out right and then said Oh. Wow ouch. This isn't so much fun. I have to admit I've tried out a few as well so I think this could be a lively conversation. We're GONNA be talking about how to avoid the six ways to lose your money and I think we should just plough right in what what is the first way that most people can can typically lose money. So I've I've I've interviewed now. One hundred and fifty people. Plus I had five hundred. People submit written stories of loss to me. So we're talking about six hundred fifty stories that I've looked at and the number one mistake people make is that they failed to do their research. They didn't do due diligence correct and they didn't do their own. Sometimes they listen to someone else and they just said that's good enough for me so that's why it's very interesting so this would be true whether it's about their business whether it's about a stock whether it's a stock they might be buying on the market whether it's about a company they're investing and taking some position in a smaller company so it's a lack of due diligence and what is what the remedy for that in a way that's going to be really easier to implement because a lot of people were going. Okay I can see how that'd be true but the truth is I don't know what due diligence to do great question and I just want to highlight one of the interviews that I did a guy named Joe Cya and basically. He bought a house to flip any made a major mistake in that is he didn't do the inspections necessary. He went without that full research and he bought the house and it was a disaster one after another and so what I learned from his story. And what I've learned in my life is that when you have a research an investment idea. Stop whole lot a piece of paper and write down the idea. The potential gains that. You're expecting why you're expecting that. This is GonNa work right down in fact used this moment do it right now. Use this moment to write down even everything great about this investment of what you're so excited about and why you. WanNa make but write it down and that is the first step of getting your research. Research started what's the second way that people often lose money? So here is the second way in that is they. Failed to properly assess and manage risk. So let let let before we go farther because I actually deal with this in my book as well so I'm curious Would you define risk the way you define it? And I'm going to define risk because I agree with you. Most people don't even if you're not to procure be honest with yourself. Are you on a daily basis going? Should I make this product or that product or get involved with this affiliate program or be on this stage? Have you really analyzed the risk or even thought about the risk I find? Most people are not thinking about that. But how do you define risk? Well I'm GonNa let one of my guests defining his name's Jeremy Newsom. He had been investing a little bit of money in the stock market. Since he was young he asked his dad for some money to invest in the stock market. He had been following silver and he put his dad's money in silver. He was you know twenty one at the time and he had no no risk management at all. He put one hundred percent of his money in. He didn't have any way of he didn't have any plan. What if silver went down? He never thought it would go down so he had no limit orders to sell or anything correct and then what happened was he also bought a derivative instrument instead of the underlying silver and the the price of silver quickly went down by about twenty or thirty percent and because he thought that derivative instrument he lost all of his money but to make matters worse what he revealed next was that the money that he lost was one hundred percent of his father's retirement savings. And what I learned from this. Is that separate your research between return the first step that we talked about and risk the second most common mistake and take that same piece of paper and write down the risks that you know that what could go wrong with this investment that you can't get your money back that it could go down. What are you going to do when it goes wrong? And so the idea is to create a risk reduction clan and if you're investing in the stock market it's a little bit easier because you say well we just put a little bit in any new idea new stock and I set some sort of stop loss to say you know if it falls by twenty percent. I just got to get out because I don't know what's going on. But when it comes to investing in for instance startups and all that the risk becomes a lot more complex because you get trapped into that investment. It's not as easy to get out so there's many different steps but the most important thing to do is right down the risks and tried to assess each of the risks and then think. How can I manage that risk? I think that's excellent advice. Enter I'm going to add to it from my perspective on risk because I realized that most people let's take a stock again and let's say it's a High Beta stock so it might go thirty or forty percent. They don't think about the fact that also means it could go down thirty or forty percent. So they're only assessing the upside so I defined risk is the probability that you will not achieve your objective so so the more risk there is like that example stock that can go up thirty or forty percent can also go down thirty or forty percent. Because it's a high moving stock is going to move faster than the stock market. You've got to assess how much profitability is it that you're actually not going to get your stated outcome and think about that. What's number three? What let me just add onto that this very hard when people get excited about an investment idea. It's hard to look at the risks and I'll just give an example in my own case. How how I've worked on it in the coffee business. Coffee works my best friend. Dale runs the business in my job is really to advise him and think about our strategy and we had been looking at expanding in the market across Asia one particular market and basically. We agreed of this. Dale would research it and then present everything positive about this opportunity. I would not go against anything I would let just bring it all on and then we would have that meeting and then in the next couple of days later we would have the meeting about everything that would go wrong in this investment. In that way. I'm not threatening his idea of what could go right. It's just that we have to take the time to look at what could go wrong. So separating your investment you know your research on the gain from your research on the risk. I believe is a way that we can overcome this. The thing I think that's absolutely critical as well So let's move to number three because we just have a few minutes before we go to break to. What's number three driven by emotion or flawed thinking So that's what you were beginning to catch on to so that you hear about something you think. Oh my gosh. This is better than water. Everybody on the planet is going to be buying this in two years from now. I'll be living in the mansion with the private jet correct and so the the the way you overcome this. Is You try to find opposing views. And then once you do that finally when you get it all together. You try to talk with a knowledgeable and objective person about it and get their feedback. It's the only way I can figure out to overcome some of that. Emotional and flawed thinking number. Four number four is missed place. Trust many people. Just give their money to somebody. It's amazing how critical there are in their life in their business but then as an entrepreneur they have extra cash someone calls them and says. Hey I got this great investment and you know next thing you know. They're wiring the guy ten thousand dollars or one hundred thousand dollars. So what I say is the way you overcome this misplaced trust. Is You get to know the person you're investing with and remember that trust only can build over time. There is no hack or shortcut to building. Trust I absolutely agree with that one as well. So I'm I'm curious folks. I didn't have a Andrew. Tell me before the show. Would THEY BE But you know I have a series seven twenty four in the past. I've done you know trading in the market and so I've learned a lot about these and unfortunately made some of these mistakes Number five failed to monitor their investment. So they put the investment and then five months later they go. Oh yeah wonder how that's doing right and nobody nobody even good friends and family is going to just naturally take care of your financial interest. You must monitor it so what? I'd say the way you overcome this is that you follow a regular free determined monitoring process when you invest in. Let's say your friend's GonNa Start a restaurant. You can invest you. Tell your friend right from the beginning in writing. I'M GONNA WANNA update once a month. It doesn't have to be more than half an hour. But you need to predetermine the way that you're GonNa Monitor that investment and that is number five number six enter. This one is really hard. I didn't know how to classify it. But so many people lose all of their money in startup investment. So I'M GONNA say number six is invested in a startup company. So yes so. It's interesting because some joining a group that that's exactly what they do And so I think the thing to remember our our several one is if you're going to be an early stage company the more that they have already gotten some capital owners have already proven their product and the interest in the market the better so that's still a startup that still in the early stages so they may have seven figures income. That's enough to get some idea. There's market actually like it. So you're supposed to assist the nice idea I think that another thing is the quality of the management team. Have done it before if you know. People who've got bill successfully built companies and brought them to the point. They could go public or they could be sold to another entity rather than having to abandon them or lot better risk and then. I think it becomes you.