Here’s How to Make Successful Investment Decisions
To become a good investor, it is important to make sound decisions. A good decision makes a bet profitable while a bad move can drain investor’s money. It is integral to update one’s knowledge, enhance assessing skills, and strategize one’s moves. The first-time investors face some difficulty while managing their investment. Here are some rules that they should consider while making investment-related decisions.
- There is no passive investment
- While investing, personal and financial goals should marry
- Create a balance between liabilities and savings
- Create a fallback plan
- What extra thing the investor is bringing on the table
- Create a Master What Matters (MWM) plan
- Look at consumer insight and balance sheet
- Be optimistic and critical
- Create a personal board
- Plan the exit
According to IBEF's report, Gross Fixed Capital Formation at constant 2011-12 prices was INR 43.34 lakh crore in 2019-20. The government had forecasted capital expenditure to increase by 30 per cent from INR 3 lakh crore in 2017-18 to INR 3.9 lakh crore in 2019-20 Domestic institutional investors (DIIs) and foreign portfolio investors (FPI) together invested INR 1.43 lakh crore in 2019.
The report was taken in pre-pandemic time. It demonstrates domestics, as well as foreign investors' confidence, into the Indian market.
Understanding the Mindset and Culture
At present, angel investors comprise family offices, doctors, and lawyers, etc. Amid the angel group, some people are relatively less experienced in the business. Such angel investors should not invest in businesses that have no commercial performance unless the investor comes from the same background.
To become an effective investor, an individual should realize that he would be coaching the company rather than becoming a captain. The investor should realize that he does not have to drive the business. He only needs to coach the player and reflect.
Besides this, another crucial element is culture. Culture is essentially an investment style that is Rationality Discipline Diversify (RDD). Rationality determines an investor’s rationality of making the investment decision. Discipline means fortifying a strong discipline, past investment cycle, and investment platform. On the flip side, the investor has to diversify one's portfolio.
"0.2 per cent of assets go for an IPO. 1.5 per cent of companies get acquired. Also, don't over expect from an investment," Gaurav Marya, Chairperson at Franchise India Holdings, shared a few statistics.
Don't Invest Alone
If an investor infuses money alone in the asset, then it becomes difficult from understanding and viewpoint. He will also face difficulty in assessing post-analytic analysis. It is advisable to invest in a group. By infusing money in a group, the individual investor sees deal flows getting larger and also, able to get high-quality deals.
An Apt Investment Style
An ideal investment style includes assessing a deal from different areas. It starts with assessing the founder or founding team. While calibrating, the investor can consider the founder's background and degrees, and what commitment the founder has to do in the coming 5-10 years in the business.
Proprietary Brand or Service
A certain proprietary product has to be there. That is how a business grows. Within this, it is crucial to ascertain business growth potential. For that, the investor has to see if the business is commercially running. After this, he can introspect if the business could see a ten times growth in the future.
The mantra of making good investment decisions lie in proprietary, business growth, and overall structure.
"An investment decision lies 25 per cent on proprietary, 25 per cent business growth, and 50 percent overall. Anything less than 65 per cent is not an apt deal for investment," Marya stated.
Risks in Investment Realm
Apart from business performance, some problems keep plaguing organisations now and then. Some of the detrimental risks are here as follows:
1. Equity Dilution
An investor infuses money into an asset, later he exits and invests at a reduced value. In this process, he does not save his position and equity develops a risk. However, he can safeguard the equity by performing a couple of things.
When an investor infuses in his capacity, he becomes involved if the invested enterprise is not firm and there are liabilities built on the business. In such a scenario, he suffers along with the enterprise.
Thus, it is recommended to infuse money into a limited enterprise so that the investment is limited to capital that has been invested.
Cruxes of Angel Investment
An investment is a combination of art and science. Science has a certain structure that an investor should not ignore. It becomes scientific when one studies the financial fundamentals of the company. While it becomes an art when one considers qualitative factors of the business like business opportunities and digital life.
To make profitable angel investing deals, here are some of the elements that have to be considered
An investor should know how to design a portfolio. At the same time, he should imbibe optimism toward the portfolio and try to diversify it as much as possible.
Types of Investors
Investors are broadly divided into two types-- strategic investors and financial investors. A strategic investor not only brings capital but experience and capabilities as well. On the other side, financial investors do not over anticipate as they only bring capital.
Finding the Right Company for Investment
While investing in a company, there are various things that an investor should consider. Firstly, the investor has to know who the founder or founding team is. Following this, he tries to know what they are telling about their company and what their mindset is. It is important to understand if they are coming from closed mindsets or sharp minds.
For instance, Ritesh Aggarwal, CEO and Founder of OYO, has come up with an infinite mindset. He is not locked with business models and geographical location. Thus, an ideal founding team should not be restricted to boundaries. They can see bigger opportunities, break orbits, and find new things unless they have the capability.
The first-time investors and existing investors should imbibe the above-mentioned information. This knowledge will help them make sound decisions.
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