I have a loose set of rules that I always try to keep in mind while evaluating investments. This is an easy one! Rule 2 is that I always look for red flags first. Why spend countless hours of research when I can find problems with an investment right away and save myself the time?
For example, a while back a friend wanted my opinion about a company named Mcig. They make vaporizers for marijuana and the idea was to cash in on legalization in Colorado as well as upcoming legislation in other places. It took maybe 15 minutes for me to decide that I didn't like the company. A brief look at their balance sheet revealed 80-90% of their assets listed as goodwill. In a nutshell goodwill is anything intangible such as a brand name. These things may have incredible value in some cases, but a company with pretty much all of their value listed as goodwill seems unusual.
Next, even though I already didn't like the company, I looked up some product reviews. Although they didn't have a ton of reviews on retailer websites, a quick search showed that the average customer was either not impressed or disliked the product.
They are still in business so maybe Mcig will become a killer. However at the time I did not see any reason to invest. I don't remember the exact date but it was in 2014 or so. It had caught my friend's attention because the price had shot up recently. There didn't seem to be anything special about the company. Why waste the time to contact investor relations and do all the other things needed before an investment can be properly evaluated? The current price is still below the 2014 spike. It might go up, it might not, I have no idea. But I do know that there are better investments out there. I can't predict the future but I can say that at the time there were other manufacturers of vaporizers that looked much more attractive.
There are so many opportunities out there. One way to success is spending more time finding them and less time on companies easily eliminated from consideration.
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