Unless a business fails completely and closes, not all downward turns on a financial market or industries signify lost causes. A foundational but little understood strategy of investing, whether in stocks and bonds or in real estate or other commodities, isn’t melding into popular investments but finding under-valued investments. Risks are still involved, for any investment into anything involves risk, but taking cautious but fair advantage of overlooked or underrated investments can lead to tremendous success as well.
Evaluate Industry Trends
As you investigate various investment options, look not just at one or two offerings but at the industry as a whole. A stock that was offered $5 higher per share last year may not mean the company is in trouble this year if the industry in which the company stock is included also experienced a similar drop during the same time frame.
Investment Considerations
Real estate is an excellent example field. Housing prices have dropped. Commercial property remains unsold or unleased for longer than ever before. However, land will never be created again on this planet. If real estate values have fallen across the country, the house you bought at $90,000 ten years ago may be valued at $80,000 now, and that may not be a bad thing. That $10,000 difference in your home’s resale value also means that a house that used to cost $120,000 may not cost that much now. Selling a home for a lower market price may enable you to upgrade your home for less than you might have before.
If industry trends show that a decline is common, don’t consider a decrease in value or in offering price an instant negative.
Evaluate Individual Opportunities
Once you’ve determined what the trends are for a particular industry, then it’s time to start looking closely at individual opportunities. If the technology industry interests you, and the trends are acceptable, pick a few companies for a closer look.
Investigate financial health, dividend history, stock splits and importantly, research and development of new products or services. The adage, “Buy low. Sell high” applies in any investment scenario, but buy at all only if realistic potential for value increase exists.
For discussion’s sake, let’s say you’re still interested in real estate. You drive by a billboard that advertises 10 acres of land that is zoned for commercial use; the price seems very reasonable. You contact the agent and arrange a tour of the land. You make an offer. It’s accepted. Congratulations, you are a land owner.
However, you read the week after you buy that the mall that was supposed to be built next door won’t be after all: The developers canceled publicized plans because they didn’t get the tax breaks they wanted.
What’s your land worth now? Did you just lose your shirt, or did you buy low enough that you can either hold the land, develop it anyway or can resell it without a loss?
Look at peripheral details that might impact your investment as well as the details of the investment itself to help reduce your risk and liability.
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