3 Reasons Why Good Investment Idea may be a Bad Idea
Are you able to give Good investment ideas?
When it comes to investments, it seems like everyone have an interests or opinion about it. As wealth managers & investment professionals, we tend to discuss more than being able to do well in investments, consistently.
Why are we not getting it right? Shouldn’t you as a wealth manager know more about investments? Shouldn’t you as an investment professional be performing much better than retail investors and housewives?
In the first place, are you really able to generate good investment ideas for your clients? Here, we ignore the myth of information age by agreeing with Albert Einstein.
Information is not Knowledge
– Albert Einstein
No. 1: Let good investment idea remain an idea
Everyone is buying Apple iphone, and the natural reasoning of investment opportunity is to buy Apple shares. But when? Imagine there is truly an optimal or precise entry level, all investors will be buying at the same time. Existing Apple investors will not want to sell either. No one will be selling. In other words, the price will keep on rising till no one wants to sell.
Hey. That is where investment experts come in, isn’t it. We know when is the right time to sell if it is too high, and when is the right time to buy when it is too low.
One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute
~ William Feather
In this case, all we need is one good stockbroker in the world. The good news is everyone has a different perception on what is a good buying and selling price. That is how the financial market works. A good investment idea to an expert may be a bad investment idea to another. So fortunately, we do need many stockbrokers, investment advisors, economists, fund managers, etc.
Myth: As an investment expert, I got a great investment idea and we should buy.
Truth: You can buy, because another expert is saying: Sell
No. 2: A good investment idea can be far worst than you think
Good things do not come cheap. We all know how Apple charges a high price for their phones. And just when you get your hands on the latest iphone, a new version will be launched. Your resale value drops drastically.
The same experience recurs in investments. When you recommend a good investment idea to your clients, you have your basis of recommendations and investment pitches ready. One smart and often asked question from the client is:” Shouldn’t we wait for the price to drop further?”
The experts retort:
- It’s going up because it’s good. People are buying. It may go up higher by 20%. Bloomberg price target says so too and unveil a list of Bloomberg Analysts’ Estimates from JP Morgan, Wells Fargo, DBS Bank, Nomura Bank ….
- We could watch, but it’s not going to come down too much. Say maybe 1%, 3% the most is 7 – 10%. And you may miss that buying opportunity as you may be busy.
- And a whole lot more why today is the best time.
It seems that you are the only investment professional in the world that spotted this amazing risk / reward.
- + 20% upside
- – 1% to – 10% downside
How many times has such investment idea gone terribly wrong? If you are a new Wealth Manager or Investment professional – within 18 to 30 months, you will likely pick up a few experiences from yourself or colleagues.
Check out 3 Movies of Heroes turn Villians in
- The Demise of Long-Term Capital Management
- Enron: The Smartest Guy in the Room
- Rogue Trader: The Man Who Cause the Collapse of England’s Oldest Bank
No. 3: If your investment idea is wonderful, you wouldn’t be a wealth manager, would you?
This is the most conflicting paradox a wealth manager goes through. To be a good wealth manager, you have to learn everything about wealth management, including investments, risks management, insurance, estate and taxes. The most exciting topic is usually investments as we talk about properties, stocks & currencies and what we could do to earn 20% within a month, with a few keystrokes. No work and easy money.
And suddenly, one investment returned 100%, turning $100,000 into $200,000 and you and your client go crazy. Who gains the credit? Someone. And it turns out that person could be you – the wealth manager. Now you start thinking, you could be the trader – the next George Soros, Jim Rogers or even legendary Warren Buffett or Peter Lynch.
But what happens if the $100,000 becomes $50,000? Where would you be?
Do you really want to give good investment ideas?
So what is the concept of good investment ideas? Wealth managers and investment experts constantly generate good ideas and opportunities, based upon available financial information and indicators. Many have turn out fine, but how do you separate them from the pretenders? And is good investment ideas what Wealth Management is about?