It’s our mantra around here: Self-Directed Investors should only deploy their capital into opportunities that are SIMPLE and SAFE and STRONG. In other words, they match our S3 standard. But what does it mean, really, for an investment to be STRONG… is it just a function of the ROI number? No, it’s much more than that, and I’ll you exactly why RIGHT NOW. I’m Bryan Ellis, and this is Episode #85…
What does it mean for your investment to be STRONG?
Let’s get one thing taken care of right away: Yes, your investment must be profitable. The STRENGTH component of the S3 Standard can not be satisfied by an investment that yields a profit below the rate of inflation… or, even worse, an actual loss.
And for all of our new listeners… first, welcome!... and next: the S3 standard is the criteria by which we, as self directed investors, evaluate investment opportunities. S3 is shorthand for SIMPLE, SAFE and STRONG, which are the 3 baseline characteristics that must be present before an investment opportunity is consistent with the core value of self-directed investors, which is to Respect Your Own Capital.
And during the last couple of episodes, we’ve been looking at the converse of those characteristics in order to identify RED FLAGS to help us avoid bad investment choices.
So, yes… your bottom-line ROI numbers are a key component of the STRENGTH factor of the S3 standard. And only you can decide for yourself what constitutes a STRONG roi. That’s a curious thing to me. For many people, anything below a double-digit annual return is insulting. But for many people, anything above 6-8% seems aggressive and fanciful. We all have our unique individual vantage points, and clearly, you know what target ROI numbers are, for you, a “STRONG” result.
But here’s the problem with focusing exclusively on ROI as a measure of strength. ROI measures ONLY the results of an investment AFTER it’s all said and done, and the check has been cashed.
That’s a critical measure, to be certain. But there’s something else to consider, and that is EVERY SINGLE MOMENT between the time you deploy your capital, until you get it all back and are no longer exposed to the investment. It’s everything between the first moment and the very last moment.
Do you know the biggest reason that people who have been successful as stock market investors choose to leave the stock market and invest in alternative assets like hard money loans and real estate notes? It’s not because they weren’t profitable at the end, but because the investment was strong ONLY at the end, leaving nothing but stress in the middle.
Here’s a hypothetical. Imagine you bought a stock that was at $50 back at the turn of the millennium. You invested $200,000 into this stock.
And today – that same stock is worth $150, and you now have $600,000. Good for you, right?
Well, sure… except…
That stock… the one that’s posted a strong ROI for you… well, it’s no been a smooth ride. It trended up reasonably well for a few years and got to $75 a share… but then there was a terrible earnings announcement and it dropped down to $40. It boomed upwards back to $80 and then the superstar CEO was fired without much explanation, cutting it back down to $50 and the next day, the SEC announced an investigation into the company, cutting it down to $20 per share.
A few years later, the company is cleared by the SEC and in the meantime, they’ve come out with some great new products, and news of the SEC acquittal causes the shares to roar upwards to over $100 until it ultimately gets to where it is now, at $150.
But in the meantime… your $50 stock has gone as low as $20 per share. At that point… your $200,000 investment had been slashed down to $80,000. That difference - $120,000 – is enough to pay for a good college education, a really great starter home, or even a really fancy sports car.
And even when your investment wasn’t at it’s worst point, it was in the losing column for much of that time… and it was very, very volatile ALL of the time.
In other words… even though the stock ultimately turned in a strong ROI at the end of the investment, it’s performance in the meantime was anything but strong. It was profoundly inconsistent. It was unpredictable. Worst of all:
It was STRESSFUL. REALLY STRESSFUL.
You simply had no way of knowing that the CEO would be fired… or that the SEC would attack… or that maybe something would happen in a foreign financial market that could hurt your investment here in a very painful way.
So strength at the END of an investment isn’t the only consideration. You should consider strength DURING an investment as well.
And frankly… the best options for having a great result not just at the end, but all the way through an investment in a PREDICTABLE manner.
And what investments are strong, not just at the end, but all the way through as well?
For that, my friends… you’ll have to make sure you’re SUBSCRIBED to this show through iTunes so you don’t miss a single episode. I’ll delve into that topic a lot in the coming days.
But here’s the truth: The point of today’s show isn’t as much to drive you into deploying your capital into a particular asset, as it is to understand and factor in the impact of the way that the volatility of that asset will affect your day to day life between the time you enter and exit the investment.
That effect is a very real factor… It creates stress which in turn strains your body, your mind and potentially your relationships as well. It’s not a factor to be taken lightly. It’s fundamentally WISE to invest in a way that won’t stress you out.
And so, my friends:
Invest WISELY today, and live well forever!!
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