Investments can be made in a diverse range of markets and industries, and across a wide array of time spans, but due diligence is something that always follows the same process. Although some will tell you that you need to get in quickly to avoid missing out, it’s slowing things down and checking all of the finer details that will make the difference.
You don’t even need a legal or financial background to understand how the process works. Below, we’ll break it down into a series of simple questions that you need to ask before investing your money.
How did I hear about the opportunity?
A junk email that offers you an amazing return is unlikely to be a legitimate opportunity, whereas a detailed strategy from a wealth manager or considered marketing from a reputable company is likely to be worth a closer look. Stopping to consider how and when you heard about the opportunity in the first place is something that can save you significant time, money, and effort in the near future.
Are the projected returns realistic?
Investment companies will market their services to you in a way that is designed to make you want to do business with them. This is understandable. However, what they cannot legally do is guarantee a specific size of return, nor should they present projected returns that are completely at odds with the real-world behaviour of the market. A great example of this is cask whisky.
“Anyone who says to you that the market is completely guaranteed is an extreme red flag,” says Alphie Valentine, Co-founder of Hackstons, whisky specialists who provide opportunities for both investment and consumption. His point here is that, even as an expert in his field, he cannot predict with certainty precisely when a cask is going to increase in value. It’s for this reason that companies like Hackstons don’t state or imply that a return is guaranteed. Anyone who does either doesn’t understand the market and the risk involved, or doesn’t care about what they are exposing the investor to.
Is provenance confirmed?
Provenance is the chain of production and ownership that allows you to confirm that what you are investing in is what it actually claims to be. Staying with the cask whisky example, provenance would cover things such as when and where the whisky was distilled, how it has been stored, how it has been handled, and who, if anyone, has owned it during the course of its life to date. Without provenance, the asset you are investing in could be worth a little less at best and completely worthless at worst.
How do I get proof of ownership?
The company you are investing with needs to provide you with a clear roadmap for how you can prove your ownership. Purchase orders and legally binding contracts should be the norm here, for whisky investments, the Delivery Order is your ultimate proof that you own the asset. Any company that is slow at providing any of the above or attempts to talk their way out of providing such paperwork should be avoided. Even if you have a passion for the asset you are looking to invest in, walking away and looking for a more reputable company is the best approach to take here.
What’s the track record?
If you take a look at Hackstons on Trustpilot, you will see the firsthand experience of their current clients covering everything from how they operate to their transparent approach to investment. This type of public profile is an important part of building trust, as it is a clear track record of their business processes and how they work with their clients. It’s important to remember that in any market, your investment cannot be expected to mirror the performance of an earlier investment, but historic long-term returns are an indication that things are being done correctly.
How will my investment be handled?
Companies that provide plenty of sales talk and patter before you invest, only to go quiet afterwards, should always be avoided. You want to know how your investment is going to be handled so that you know the asset you are investing in will be looked after correctly. Mishandling or unsuitable storage is a guaranteed way to reduce the value of an asset, regardless of the market. Ask for specific details regarding how your investment will be handled so that you can see how things will work long-term. Companies worth their salt will typically offer some form of comprehensive insurance to ensure your investment is protected from unforeseen issues.
Can I get answers quickly and easily?
Even if all of the above checks out and you feel like there is nothing left to ask, it’s also important to reflect on how easy you have found the process so far. If you have had a dedicated point of contact who has been able to guide you through everything you need to know quickly and efficiently, this is a strong indication that you are dealing with an expert.
Performing due diligence on every potential investment is the smart approach to take because it will protect you from scams and allow you to assess the true nature of the opportunity. Taking your time to ask each of the questions above will help you lay the foundations for a strong, diverse investment portfolio.