The importance on understanding what you're investing in

By Jimmy Fuentes

Yesterday I spoke to a stock market investor who stopped by the shop for an oil change. I figured out he was an investor when I saw him open up his phone and search up the NASDAQ composite and looked at the performance these past 5 days. Suddenly a tear rolled down his eye. 

 NASDAQ performance last 5 days. Down by ~1.4%

NASDAQ performance last 5 days. Down by ~1.4%

"Oh sh*t... he actually has money in the markets... I should make small talk with him" I thought to myself. 

The guy was super laidback, he was telling me how he has been investing for the past 30 years, how he held on during the great recession of 2008 and the dot-com bubble of 2001, how he first started investing when he was only 15 years old and shared his philosophy on investing. While he and I might have different philosophies when it comes to investing, what we certainly did agree on was this: Understand what you're investing in. 

This doesn't have to necessarily be related to JUST the stock market, this can also relate to relationships or business.

Stock market

Understanding how a publicly traded company makes money, what it sells, who it sells to (B2C, B2B, B2G) who their board of directors are, and past performance/history of the company are all essential for you to have a concrete understanding of how the company is run. The reason why (I'd say about 65%) investors sell their shares of a certain company in a panic is due to the lack of understanding of the company and its potential growth/prosperity in the future. There is a high-flying stock this year, everyone has it in their portfolio, you want in since they're making a killing and making a ton of money. You briefly do some research on the company and dive in with your money. The company, however, practices something you don't agree with that you're against, say, testing their products on animals. Yet, you failed to figure out their practices, and go against your principles without knowing about it since you failed to do your research. This could have been entirely avoided have you just done some research on the company prior to investing. 

Relationships

Knowing from the start what your partner wants/expects in the future is essential. You want to get married but your partner doesn't, your partner might want kids, you don't. It's vital for the two of you to sit down and share what you're getting yourself into. Similar, if not, exactly like a long-term investment made in the stock market. You save yourself time, you qualify if the person you're with is worth your time and efforts, and no hearts get shattered. 

Business

Self-explanatory here, if you have no clue how your potential business operates than what's the point of even thinking about starting up the business you want to create. Which brings me to a story. A close friend of my pops decided to buy farmland. He didn't do much research on it, all he knew was that the farmer will grow the crops, sell them, and he'd make a commission off it. In order to jump-start the business, the farmer needed some capital to get it started. He went ahead and mailed him a check. Months went by and the farmer informs him that the soil was no good to grow anything on it. Months later, we suddenly see this farmer in this enormous house, with farmland that actually yields crops. Now, you might argue that he got scammed by the farmer, but needless to say, that would have been completely avoided had he done some research and understood where he was placing his money in.