Over last 8-10 years of investing for myself, friends and clients in individual stocks, mutual funds, hedge funds I noticed that the headline number that gets most attention is returns. In how many years will this investment become 2x, 3x or will it return 5%, 6%9%,20% per year. Not enough ink is spent on how things can go bad for the investment. If I do not pay serious attention to honestly recognizing how I will lose money in an investment, at some point $1,000,000 will become $0 when invested in series of bad investments that lose value over time.
If it is an investment in public/private company: How will the underlying business lose customers? How will their products become obsolete? How strong are the competitors? What could blow their costs? How good is their intellectual capital? Do they attract outside talent? How did it do in previous recessions? How did it do post recovery? As I make investment, I document responses to these questions using conference call transcripts, message boards, news letters I subscribe to, asking your friends, measuring against industry trends, talking to relevant people working for the company, suppliers or its competitors.
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