$1200 is not a lot of money, but to invest it effectively you need to make a quality investment. So what defines a quality investment? Financial advisors use this term whenever they are pushing a product offering them a high commission, but what exactly is a quality investment, lets find out in this article.
To know what is meant by a quality investment we first need to understand in plain and simple terms what an investment is. Investment is a funny word, because you can only know whether you invested or wasted money by judging the outcome, so it is a word with a retro active meaning.
In plain English, an investment is simply defined as a transaction that has given you a return on top of your capital outlay. In other words, you got back your $1200 and you got some extra on top of your initial outlay.
So, the word quality is a value judgment. A quality investment can only mean an investment that has given you back your money and a "quality" return. Typically, when we hear the term quality investment, we are confused by the opaqueness of the meaning. Sure, the glossy brochure offered looks well designed and is glossy, but how does that make the investment a quality investment?
A quality investment gives you back your initial seed capital and a good return. The SOR or speed of return is important too. If the investment cycle was just a week, and the return was good, then that would be considered a quality investment.
Now that we have defined what a quality investment is, lets look at an example of a real quality investment. Lets say, we are good at the used car market. We understand the models and the motor sizes and what is currently a popular choice for buyers in your local market. Lets say due to peak oil, small four cylinder cars are selling like wild fire. You know this, but the person selling a beaut little four cylinder thats neat and tidy for $1200 down the street, he doesn't note this and has not even thought about it. All he wants is to get rid of the car because he got a new company car.
You know this car will sell fast and will sell easily for $2000 It is what we call in the stock market, a financial mis-pricing. So you take the car and re-advertise the vehicle for $2000 you get several offers and you let it go for $1700
That is around $500 in profit minus the cost of advertising. Around 40% return in one week. What I have just described is a quality investment because you had control at all times of the money, your knowledge made it possible to negate much of the risk in the transaction. Also, unlike the stock market, when you handed over $1200 you got something in return, a tangible item with equal or better value. You were also able to clean and detail the item to further control the value of the object.
That is a very high standard, quality investment.
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