There are huge gains to be made from investing in the right companies. On the flip side, without putting in the right due diligence you could just as easily lose money on your investment.
The good news is; if you know what to look for when investing and are willing to put in the time, you can put the odds in your favour that you’re going to make a smart investment.
IW Capital is a leading private investment company, some of the key things they point out when looking for the right companies to invest in are:
Look within industries you’re knowledgeable in
It’s always tempting to enter into a new and exciting industry when investing in a company. But leveraging your knowledge and understanding of an industry you’re familiar with is a smarter decision.
This doesn’t have to apply to industries you’ve worked or invested in, it could be an area you’re passionate about. As long as you’re invested in the industry in some way, you’ll make more informed decisions and increase your chance of success.
Narrow down your focus
Most investors and professionals are interested in several markets and industries. When it comes to investing, you can’t study several markets to the point where you’re going to be comfortable investing in a company.
Narrow down the industries you’re looking at. If you can, further narrow down the types of companies you’re willing to invest in. This might be by age of the company, turnover, or any other metrics that help you determine the risk.
Research the management team behind the company
A company is only as good as the team running it. A smart investor will always take a look at the team making the decisions for a company and evaluate their strengths and weaknesses.
How invested in the company are the management team? How much experience do they have in the industry? Have they built up companies before? These are all the kinds of questions that will help you get a better understanding of where they can take the company.
Look at the growth opportunity in the market
Much like how a company is only as good as the decision-makers behind it. A company can only grow within a market that has enough room for growth.
Do some research into the market for projected growth over the next 5 years, 10 years, and beyond. Take a look at the main competitors too, each of these companies are going to take a bite out of the market.
In summary
When looking for the right companies to invest in, your best chance of success is to look close to home. Stick to the industries and markets you know well, research the companies and management teams behind them, and you’ll find yourself investing in companies with a bright and prosperous future.