This is the system that I use in my investing and it is also the system that I have taught to many other professional investors.
1. Desired Outcome
Always start the assessment of any potential investment by having a clear picture of what you want to achieve through this investment and why you want that particular outcome.
It is important that your desired outcome is compatible with the larger picture of your major goals and purposes
2. Select a Strategy
Decide what investment strategy is appropriate to meet your desired outcome. You may modify this as you go through the other steps in this process.
Of course the greater your knowledge of investment strategies the better equipped you will be to choose an appropriate strategy to meet both your goals and your current circumstances.
3. Identify Risks
It is crucial to identify the likely risks and then design a practical, sensible, effective risk management plan. Also note that you go through the risk identification before the profit analysis. This is to ensure that you don't get swept away with enthusiasm for a potential profit and forget to manage the risks.
Make sure that your risk analysis is realistic rather than optimistic. There is a place for optimism in wealth creation but it is certainly not in the risk management phase.
4. Identify Profit Potential
Profit potential needs to be thoroughly analysed and you also need a profit management plan to ensure that you actually collect on profits at an appropriate time.
So often, particularly in the stock market, would-be investors have paper profits but, because they have no strategy for when or how to collect, they hang in until the profits have evaporated.
Also it is important to decide the form of your profit. Will it be in cash or in assets, for example?
5. Compared to What & Cost versus Benefits Analysis
This is where you consider alternate investments and/or strategies and do a cost benefits analysis on each to help you decide the most appropriate investment for your desired outcome.
6. Identify and Overcome Obstacles
Almost all investments have potential obstacles that you will have to overcome in order to maximize your returns and minimize your risk. It helps to have identified them in advance and to have formulated a strategy to overcome or avoid them.
7. Design Your Exit Strategy
You should never enter an investment, or business, without having a clear strategy for exiting in the event that things go badly wrong or in the event that you have made a large profit and wish to move on.
8. Make a Decision
Once you weigh up all your research it is time to decide whether you will proceed or whether you will look for a different investment.
9. Take Action
A decision has no power until it is acted upon. If you have decided to proceed then take the necessary action step to put your investment into reality. If you have decided not to proceed then start taking action to find a better investment opportunity.
10 Review Your Outcome
Every action produces an outcome of some kind. If your outcomes are favourable then keep on with your plan, if they are unfavourable then review your plan as required, if they are disastrous then action your exit strategy.
1. Desired Outcome
Always start the assessment of any potential investment by having a clear picture of what you want to achieve through this investment and why you want that particular outcome.
It is important that your desired outcome is compatible with the larger picture of your major goals and purposes
2. Select a Strategy
Decide what investment strategy is appropriate to meet your desired outcome. You may modify this as you go through the other steps in this process.
Of course the greater your knowledge of investment strategies the better equipped you will be to choose an appropriate strategy to meet both your goals and your current circumstances.
3. Identify Risks
It is crucial to identify the likely risks and then design a practical, sensible, effective risk management plan. Also note that you go through the risk identification before the profit analysis. This is to ensure that you don't get swept away with enthusiasm for a potential profit and forget to manage the risks.
Make sure that your risk analysis is realistic rather than optimistic. There is a place for optimism in wealth creation but it is certainly not in the risk management phase.
4. Identify Profit Potential
Profit potential needs to be thoroughly analysed and you also need a profit management plan to ensure that you actually collect on profits at an appropriate time.
So often, particularly in the stock market, would-be investors have paper profits but, because they have no strategy for when or how to collect, they hang in until the profits have evaporated.
Also it is important to decide the form of your profit. Will it be in cash or in assets, for example?
5. Compared to What & Cost versus Benefits Analysis
This is where you consider alternate investments and/or strategies and do a cost benefits analysis on each to help you decide the most appropriate investment for your desired outcome.
6. Identify and Overcome Obstacles
Almost all investments have potential obstacles that you will have to overcome in order to maximize your returns and minimize your risk. It helps to have identified them in advance and to have formulated a strategy to overcome or avoid them.
7. Design Your Exit Strategy
You should never enter an investment, or business, without having a clear strategy for exiting in the event that things go badly wrong or in the event that you have made a large profit and wish to move on.
8. Make a Decision
Once you weigh up all your research it is time to decide whether you will proceed or whether you will look for a different investment.
9. Take Action
A decision has no power until it is acted upon. If you have decided to proceed then take the necessary action step to put your investment into reality. If you have decided not to proceed then start taking action to find a better investment opportunity.
10 Review Your Outcome
Every action produces an outcome of some kind. If your outcomes are favourable then keep on with your plan, if they are unfavourable then review your plan as required, if they are disastrous then action your exit strategy.
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