The main reasons that anyone ventures into any investment are usually for profits and appreciation. Occasionally there might be the odd tax break for doing so, but at the end of the day it’s usually about making money.
What differentiates investment from gambling for most is that investment involves the acquisition of an asset, as opposed to gambling on an outcome. The reality however with respect to any investment, asset based or otherwise, is still based upon the outcome of events.
How well you understand or indeed are aware of these events will dictate largely how successful an investor you are or will be. The understanding itself won’t effect the outcome, but it should affect how you go about choosing an investment in the first place.
Predicting the outcome of events is something that has baffled the worlds greatest minds since the dawn of time. Philosophers and Physicists alike have pondered over such conundrums creating all sorts of weird and wonderful theories, either in a bid to solve the questions (usually to only uncover more) or to just confuse the world at large even further.
There are ways however to unravel the confusion surrounding property investment and at least understand the risk aspect to it without leaving a paradoxical situation similar to Schr�dinger’s Cat
The key itself is pretty simple. Logic dictates that if you understand every possible outcome of events, the answers should be discoverable. Reality however is a very different matter. Many will argue that “surely all those that invested into property during the boom must have understood the risks?” Well, it would seem not. If they had, everyone would have made money!
Granted, no one has a crystal ball, but if you look at all the variables involved in something you are about to invest in, as opposed to just the positives or negatives, you should be able to evaluate the quality of the investment itself. There will of course be variables that you cannot control (interest rates for example). In the cases where there are a number of unknown variables
, one really does have to question the validity of the investment itself.
In these tough times though, variables have no place in the investment world when planning for the future. There is hardly an investor out there that hasn’t been affected by the drop in the property market in some way or another, directly or indirectly. There are those of course that will say “I’m alright Jack” but on closer inspection will discover that their own home has dropped in value, possibly even into negative equity. Just because they might be unaware of what impact the market changes have had on their investments, it doesn’t mean there hasn’t been an impact of some kind - much like the age old philosophy conundrum of the tree falling in the forest, “If no-one sees or hears it, has it actually happened?”
Just as Schr�dinger’s Cat is perplexingly both alive and dead at the same time, purely because it is confined to a box preventing us from seeing its state, the investment world is full of similar problems at many levels. Ultimately, if you are investing in these times of uncertainty, it is essential to know and understand the variables and outcomes. If on paper the investment leaves you as confused as Schr�dinger was (so much so it leads you to create a theoretical experiment to prove your confusion) then you really should move on to the next idea.
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- Tuesday 13 April 2010