Alexander Dillon on the 5 Warning Signs Every Investor Should Be Aware Of Right Now
My name is Alexander Dillon, and I was 32 years old when I founded several successful businesses. I founded Blackbridge Capital, a successful investment firm, just a year after graduating. In 2021, I will launch GenCap Management, a new investment firm.
I’ve seen a lot of telltale signs of great investment opportunities over the years. But I’ve also seen a lot of dangerous ones, so I’ve compiled this list of the five red flags every investor should be aware of to avoid them entirely.
1. Making Unattainable Promises
Perhaps the most important red flag that every investor should be aware of, in my opinion, is also one of the most obvious. If someone promises returns that appear far too high and yields that seem far too low, it’s easy to conclude that “this sounds too good to be true.” Trust your instincts because they will be correct in most cases.
In general, if you start seeing promises of returns at 50% and only go up from there, you know you’re taking a significant risk. In the worst-case scenario, you’re dealing with an outright scam, which should be avoided at all costs.
Of course, in some cases, high returns are possible. However, given that the industry’s mantra is usually “under promise, over deliver,” these circumstances are unusual.
2. “Partners” who can’t prove they’re as experienced as they claim
This is yet another red flag that is all too common in investing. Someone will claim to have years of experience and to have navigated countless successful deals over the years, but when you ask for even a small amount of documentation to back that up, they suddenly can’t find any.
Often, these individuals will try to “wow” potential investors with a flashy prospectus and a slew of impressive-looking charts and graphs outlining how much money everyone will make. That’s fantastic, but you can create documents like these with the software that comes standard with almost any computer these days.
Anyone who claims to be as experienced and knowledgeable as they claim should be able to prove it — period, end of the story. They’re not nearly as skilled as they claim if they can’t.
3. Investment Opportunities That Fall Into Your lap
You should always look for investment opportunities for the best results. Waiting for them to come to you, or worse, fully embracing those who do come to you without due diligence, is a recipe for disaster.
For example, every seasoned investor has had the experience of receiving an utterly unsolicited investment opportunity from someone essentially a total stranger. The truth is that the vast majority of these situations are, simply put, scams.
Similarly, be wary of investment opportunities from people you “sort of” know (acquaintances or friends of friends) or people you know who have never shown any interest in investing.
Most of the time, these people will approach you with what they claim is a “sure bet” — they just need a small amount of money to get started. This, too, rarely works out in anyone’s favor, and such situations should almost always be avoided.
4. Increasing the Pressure
Another major red flag I’ve seen in my career as an investor is when someone comes to you with an offer and immediately turns up the pressure if you don’t act enthusiastic.
Consider the last time you went into an electronics store, only to have a salesperson try to upsell you on something far more expensive. It was most likely a bad experience, and it may have put you off shopping at all. People who exert purchasing pressure are similar, albeit on a much larger scale.
Finally, someone who turns on the pressure and refuses to turn it off can mean a few things. You may be dealing with a novice who has no idea how the process works. It could also indicate that you’re dealing with a failing business trying to entice you to invest before you realize what’s happening. In any case, it’s a situation you don’t want to be in, and if you do, proceed with extreme caution.
5. A lack of comprehension
While many of the previous items on this list dealt with red flags relating to the people you’re dealing with, the final one deals with how you conduct yourself.
Simply put, investing in an opportunity you don’t fully understand is a bad idea. The more complex the situation, the more likely something will go wrong. That’s not to say you can’t take the time to learn more about what’s in front of you — but if you start researching the opportunity and end up scratching your head, you’re in a bad situation. You might get lucky now and then, but it will always be blessed.
Finally, there are great investment opportunities daily; you just have to know where to look for them. But, more importantly, you need to know what you ultimately need to avoid for your wellbeing, which is exactly what the red flags on this.