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Tame risk and gain the lion's share of an investment: 5 no fail strategies to pure profits!

Understanding risk is difficult, but taming risk is the ultimate ingredient in a successful investment. Before you can tame risk, know that risk is personal. Everyone has his or her own risk tolerance level. For example, if you ask two people if they would like to bungee jump, they may respond very differently, even under the exact same conditions. One individual will show excitement to jump, while an emphatic "are you crazy?" resounds from another. Both people have the same information upon which to base their decision, yet each evaluated the risk very differently. This may sound a tad philosophical, but the point is clear: risk is an element to be reckoned with in any decision-making process. Two "musts" that will propel you toward a clearer under standing of risk are (1) a commitment to change your habits of evaluation and (2) preparing for a more informed, conscious, and common sense decision-making process.

The following five strategies can lead to many more investment successes. At first, these changes may seem uncomfortable and possibly even frustrating. Remember this is your money and your investment; changing your habits will help you build your wealth.

Become a Smart Risk-Taker.

Many people fall prey to the idea of getting rich quick. Instead of thinking in terms of "get-rich-quick," change your mindset to "get-rich-constantly and forever."

The get rich quick psychology implies reaching a stopping point. Real wealth builders never stop building wealth. They are looking for that next rung on the ladder, consistently improving themselves and their financial situation.

One get-rich-quick game that comes to mind is gambling (that's right, Las Vegas style). If you want to get rich quick, you may just head for the craps table. If you place bets without being knowledgeable about the game, you may squander away all of your hard-earned financial resources.

However, if you are thinking in the "for ever" mode, you may step up to the same table with limitations, parameters, and even a loss limit that you are willing to accept. In this new mindset, winning is not a one-shot deal; rather, it is something to be sustained over and over again. Losing all your resources in the first go-around will put you out of business and make it difficult to recover. By changing your thinking to that of a lifetime of wealth building, you are on the path to becoming a smart risk-taker.

Love the Facts

During different times in our day, and in our life, our risk evaluation process changes. For example, when sick with the flu, under stress or just plain tired, our ability to evaluate risk is clouded. That's why it's important to look at all the data required to make a successful decision. Don't make a decision based on incomplete information or emotion alone. Seek out the real information and remove your feelings from the equation. Explore the questions that are preventing you from making the decision. Ask yourself:

* Do I understand the project?

* Do I have a clear description of the investment requirements, including information on debt, equity, profit potential, and exit strategy?

* Do I understand the detailed cash flow projections?

* Do I know the players involved in the project?

* Do I like the project's competitive advantage?

* Do I believe in all the facts?

By relying on the facts, you'll make a wise investment decision, no matter how you are "feeling."

Protect Yourself and Your Money

There are three simple things you can do to gain control of the investment opportunity:

* Take time to get it where you want it.

* Check, check and recheck the facts. Don't rely on the information you hear from the salesperson. Perform your own due diligence. This may seem time consuming at first, but it will result in huge profits later. Seek out the terms that are right for you.

* Remember to be flexible in your approach, and negotiate to win. Placing a "take it or leave it" offer on the table will usually result in no deal. If you cannot reach your comfort level, remember, you can always walk away and return later to the negotiation table.

Be smart and protect yourself and your money by becoming intimate with your prospective investment before you invest.

Be the Investor

If you can't be the investor because of lack of funds, at least think like the investor. How do I think like an investor? Here's how to think the role:

* Be a longer term thinker.

* Use objective analysis.

* Become investment return oriented.

Think as if it were your money on the line. Ask yourself, "Would I put my own money into this project?" If your answer is no, then you must answer "why." Anything short of a positive answer could have you heading down the path to failure. By "being the investor," your understanding of risk will be heightened, and you will gain more positive investment results.

What Do They Got That I Ain't Got?

Evaluate, evaluate, evaluate. Look at your potential investment and ask what makes it good and what makes it bad. Some places to start your hunt are:

* Existing competition.

* Missing elements.

* Alternative investments.

* Motivation of the salesperson.

The more evaluation and questioning you do, the more information you will uncover. The more hard facts you have, the more control you will gain over risk.

Putting the Leash on Risk

Achieving consistent success in your investments requires objective evaluation and systematic self-control. Otherwise, your long run won't be very long. So tame those risks by mastering the five techniques described above. When you do, victory will be yours.

Al Auger is an expert in commercial real estate developing, investing, and financing. He consults with companies and individuals to help them locate, finance, permit and develop commercial properties. He is the author of Pure Profits: Pinpoint Winning Properties, Think Like an Investor, and Succeed in Commercial Real Estate. He can be reached at 407-804-92.35 or at
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Author:Auger, Al
Publication:The National Public Accountant
Geographic Code:1USA
Date:Sep 1, 2003
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