When it comes to determining the value of a particular investment, there’s a lot of industry jargon that gets mixed in. You might find yourself amid a sea of financial reports, earnings calls, and a lot of paperwork you don’t understand. This sort of information is intimidating to new investors and actually stops a lot of people from wading into the investment waters entirely.
Fortunately, value investing is much simpler than that. You can break down an investment to its most fundamental pieces with some honest questions.
You should understand your investments are thoroughly as possible. If something is unclear or doesn’t make sense, ask questions until you are, you shouldn’t trust blindly with your money. The more you understand, the better the outcome will likely be.
When you evaluate an investment, here are some fundamental questions to ask.
- How are they making money? Do you understand their business model? Do they make money in a reasonable way you understand? If something in the news would affect the way they do business, would you be able to recognize that?
- Do they make money right now? Were they profitable last year? What about the previous five or ten years? If they aren’t making many, is there a reasonable explanation why? (For example, Amazon has made very little money since its inception, but that’s their strategy: to go for growth right now.)
- Can they continue to make money for a long time? Would a reasonably small change in society, politics, or economics disrupt how they do business? Is their industry here to stay for a while, or is something new coming along? For example, I personally wouldn’t invest with any of the Bitcoin companies because technically it is not legal in the US yet and is still too knew to understand how they will make money long term.
- Are they doing anything that would prevent them from making money? Does their strategy seem like it will continue to make money, or are they taking risks that could be costly? For example, take a factory or plant that regularly pollutes. It could face fines that wipe out a year’s earnings.
- How likely is it that they continue to grow? Are they treading water, making the same money every year, or are growing larger each year? Is that growth acceptable or should they be growing faster?
- Is the investment making money in its intended manner? For example, is that telecommunications company making money on cell phone subscriptions like it intends, or is it staying afloat on accessories sales?
- How do you get paid? What is their payout strategy for investors? Do they pay dividends often? Do you receive more shares?
- Is the expected return acceptable? Is the investment returning expected numbers, or do they fail to meet expectations each quarter? How does this investment compare to the industry? Are other investors pleased with its performance?
Basically, you can evaluate a company or investment by getting a clear picture of three perspectives:
- The present: is the investment strong right now?
- The future: does it have strong growth potential?
- The industry: how does it compare to similar investments in the same niche/space?
Hopefully you understand that detailed industry knowledge isn’t necessary to pick good investments. You just have to ask honest, reasonable questions.
At Mascia Development, we welcome our current investors and future investors to ask us any of these questions and we will give you clear answers to how and why we think we will be able to make you money for many decades to come.
Written by Mark A. Mascia, President and CEO of Mascia Development
Mark manages the investment and operating activities of Mascia Development, a diversified value real estate investment firm that acquires, owns and manages retail, medical office, family offices, multi-family, and industrial real estate properties in the most promising long term growth areas nationwide. Through crowdfunding, they create powerful real estate opportunities for high net worth individuals.
A fully integrated real estate company, Mascia Development has in-house capabilities in acquisitions, financing, re-development, and construction; and their principals have experience in property and portfolio management, leasing, and maintenance.
Mark has a strong career in real estate, previously managing a property of portfolios valued over $1.1 billion. Mark has worked at Archstone-Smith (a former publicly traded REIT) and Monument Realty, one of the largest office real estate developers in the Washington, DC metro area. Mark teaches real estate development and finance at New York University.
For more information, visit www.masciadev.com.
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