In summary, the game of investing is won or lost on the due diligence battlefield.
You must ask questions until you have the answers you need to make an intelligent decision. A quick review of the five “must ask” due diligence questions follows:
1 How can I lose money with this investment?
2 How will this investment help me achieve my personal and portfolio objectives?
3 What’s my exit strategy?
4 Does this investment pass the business common sense test?
5 How does this investment affect the risk profile and mathematical expectancy of my portfolio?
My intention is for the above list of due diligence questions to serve as a basic starting point for your own due diligence process.
“The key to wisdom is knowing all the right questions.”
— John A. Simone, Sr.
I don’t pretend this list is exhaustive because a whole book could be written on the subject. Other due diligence questions to consider include:
1 How realistic is the expected return?
2 What are the assumptions and drivers behind the expected return?
3 How dependent is the historical return on the time period analyzed?
4 What are the tax consequences of this investment?
5 What’s the background and history of each principal involved?
6 And many, many more.
My goal with this article was to arm you with some of the more important due diligence questions that can help you avoid the most obvious and expensive errors on the road to retire early and wealthy.
I hope it helps you.
About Todd Tresidder
Todd Tresidder holds a B.A. in Economics from University of California at Davis. He is a Member of the Economics Honors Society and Deans List.
Todd has been a serial entrepreneur since childhood, building many businesses before retiring at age 35 from his position as a Hedge Fund Investment Manager responsible for a portfolio in excess of $20 million.
He raised his net worth from less than zero at age 23 to being a self-made millionaire 12 years later by “walking the talk”, using the same personal finance and investment strategies as he teaches on his website, financialmentor.com.
Todd was an early pioneer and expert in statistical and mathematical risk management systems for investing. He is still an active investor and earns consistent investment returns in both up and down markets.
You can find more of Todd’s investment writing at financialmentor.com
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