Invest Like an Entrepreneur
Most individual investors in the stock market don't realize that they're only earning an average of 5-10% per year before taxes and commissions, and then only if they remain invested for 25 or more years.
Why is this number so low? Because all the institutional investors, bankers, etc. have pulled out all realizable profits before you're even offered the opportunity to get in on the deal.
How, then, is the average individual investor like you expected to make a buck in this market saturated by professionals? In two words - you're not. But that doesn't mean it can't happen. And the best way to do it is to follow their lead. Do what the pros are doing. And in the case of investing, what they're doing is ground-floor entrepreneurial investing.
Depending upon how much you are willing to do to educate yourself, both about investing in general and about each individual industry and investment that you're considering, you have available to you a wide number of profitable investments.
If you don't want to do any more homework, then be satisfied with the modest (read: meager) returns from your mutual funds and CDs. If, however, that's simply unacceptable to you, then read on! There's good news ahead.
Entrepreneurial investors get in on the ground floor of promising new investments long before anybody - even the media - has heard about it. They do this by seeking out established businesses looking to grow and established developers wishing to expand. They do not gamble on unproven ventures. They network with other entrepreneurs and investors. They sit across the table from owners of promising businesses and invest directly with them. They go straight to the source, earning returns in the 10-20% range or higher, returns that are paid out on a quarterly or even monthly basis.
Here's an example. Consider that in almost every real estate market there's at least one rehabber who's at the top of his game. He finds dilapidated buildings, renovates them then sells them at a profit. This is also known as "flipping." Seek out the most consistently successful flippers in your area and find out what projects they have slated for the near future. After they've taken on so many projects and expended all their cash and credit reserves, they're going to need additional funding from outside investors. And you might as well be at the top of their call list.
Now, let's pause here to make a key distinction, between "start-ups" and an ongoing businesses. Start-ups would rather use your money than their own. Stay away from start-ups (unless it's your own labor of love - then good luck).
Ongoing businesses, on the other hand, have put their money where their mouths are, invested themselves to the max in their endeavor, and have some degree of proven success. They already have an infrastructure, suppliers, inventory, customers, and above all, a verifiable track record. And now they simply need additional resources to continue to grow and expand. These are the investments worth considering.
You could start investigating numerous possible investments this way, networking with people in the businesses that interest you, and educate yourself about the industries they're in. Find out what people in the same markets say about one another. Compare theories and predictions on where their industry is going. Let them know you're an interested potential individual investor. They'll talk your ear off.
There are countless opportunities to invest your money with the promise of much higher returns than with the stock market. Find a retailer with three successful stores looking to open a fourth in an untapped neighborhood. Find a manufacturer looking to expand their business overseas. Find a developer who accumulates large parcels of land and subdivides them for residential and/or commercial uses.
Make no mistake - making six-figure returns is not a walk in the park. Certain skills are required to take on direct ownership as a partner in a budding business or business deal. Firstly, you'll need to learn some basics of accounting, because if you don't know how to read financial statements and interpret the numbers, then you're stuck having to take other people at their word. And they've all got their own best interests at heart, not yours. At the very least, you need to be able to discern a business that's run well from one that's run poorly.
You'll also need to develop your networking skills. Making phone calls, knocking on doors, attending conferences, scheduling appointments, passing out your business cards - all are critical parts of locating the choicest deals.
Most existing businesses will first turn to their known acquaintances and associates before looking to strangers to invest. They believe in what they're doing, with a passion, and want to offer a shot at big gains to their family and friends first and foremost. If you're not already a part of their inner circle, it's going to be hard to find out about the most promising opportunities, much less get in on them.
Lastly, you'll need to learn how to do your due diligence, researching all the necessary information on your own, independently of the business owners' stout-hearted claims. Verify the facts - with more than one source. Solicit impartial outside opinions. Research the climate of the market - timing is everything. What could be a great investment a year from now may be a loser right now.
With stocks and funds, a team of accountants and lawyers have dissected each investment and delivered their analysis to you in the form of a prospectus. In private equity offerings and debt financing deals, the onus is on you to develop your own sort of prospectus.
Most of your typical investments offered to your average individual investor offer little control and minimal returns. These are the investments the seasoned investors have already taken a pass on. Why not put in just a little extra effort and start raking in the profits that the big boys and girls do?
Kenneth C. Kelly is the President of Strativia, a financial management software development and services company specializing in applications for personal and business use. Strativia is the developer of Budget Forecaster, a sophisticated home budget and personal finance management software package. Website: www.strativia.com. Contact: info@strativia.com.
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