What high risk/high return things are you invested in
Discussion
If you're going to diversify into start up's or anything high risk you have to diversify....it's madness to put all your eggs into one basket.
I've invested in 5 such investments over the years...most were about 15 years ago before kids when I had disposable income. Buying a 2.7 RS would have been a better investment than most!
Three have gone bust. One is still going but struggling to gain scale/proper profitability (it's in the education furniture market) and the other might be IPO'ing next year having paid decent dividends for the last six or seven years.
None have been easy, both that have survived have had cash calls along the way.
Things I have learnt
- You can have the best idea in the world but it is all about management/execution (very expensive lesson in one case)
- From the above you are investing in management as much as the people
- Businesses very rarely hit targets. Everyone is overly optimistic!
- You have to expect that there will be a cash call at some stage. If you cannot participate in that expect to be diluted severely/lose all your equity. The man at the table with the cheque book when a company needs money holds all the power.
The one that causes me the most stress (to this day) is the most successful one.....
I've invested in 5 such investments over the years...most were about 15 years ago before kids when I had disposable income. Buying a 2.7 RS would have been a better investment than most!
Three have gone bust. One is still going but struggling to gain scale/proper profitability (it's in the education furniture market) and the other might be IPO'ing next year having paid decent dividends for the last six or seven years.
None have been easy, both that have survived have had cash calls along the way.
Things I have learnt
- You can have the best idea in the world but it is all about management/execution (very expensive lesson in one case)
- From the above you are investing in management as much as the people
- Businesses very rarely hit targets. Everyone is overly optimistic!
- You have to expect that there will be a cash call at some stage. If you cannot participate in that expect to be diluted severely/lose all your equity. The man at the table with the cheque book when a company needs money holds all the power.
The one that causes me the most stress (to this day) is the most successful one.....
When JJB sports was going into administration (the occasions before they actualy did) I got up and bought £1000 worth of shares at 8am as news broke it was being bought out or had some deal. Shares were 6p odd and by 12pm I had sold them for 18p ish
Sounds great but I tried to do the same with Connaught (sp) but refrained and saved myself a £1000 loss.
Risky buying into a companies about to go bust but good returns if you pull it off. I've decided it's to risky for me, you really need to be on it and more experienced and id rather just play the longer game.
Sounds great but I tried to do the same with Connaught (sp) but refrained and saved myself a £1000 loss.
Risky buying into a companies about to go bust but good returns if you pull it off. I've decided it's to risky for me, you really need to be on it and more experienced and id rather just play the longer game.
If you want high potential high returns and are prepared for the attendant high risk, the stock market still rules. I invest in companies in the lower reaches off the ftse 250 & 350. I do my research but it's still a bumpy ride. On the one hand over the same year I've returned 59% on one holding (plus dividends) and am down 37% on another in one day after bad news (profits warning). Over a basket of 13 holdings I'm up 7.2% plus about 3.5% yield so despite trying to build an 'adventurous' portfolio I've ended up with the upper end of normal expections of a balanced portfolio. I am sure that's down to chance and general market fluctuations and fully expect to be very up or down by this time next year. I look to the long game and figure that all the time I am getting a reasonable yield, any great capital gain is icing. Equally any paper loss is only that if I don't sell.
Like many above have said, there are those out there very willing to part fools from their money on the promise of rich pickings for the adventurous investor.
Like many above have said, there are those out there very willing to part fools from their money on the promise of rich pickings for the adventurous investor.
bazza white said:
When JJB sports was going into administration (the occasions before they actualy did) I got up and bought £1000 worth of shares at 8am as news broke it was being bought out or had some deal. Shares were 6p odd and by 12pm I had sold them for 18p ish
Sounds great but I tried to do the same with Connaught (sp) but refrained and saved myself a £1000 loss.
Risky buying into a companies about to go bust but good returns if you pull it off. I've decided it's to risky for me, you really need to be on it and more experienced and id rather just play the longer game.
I tried to do the same with HMV when they went into administration, except I timed it all wrong and lost £500.Sounds great but I tried to do the same with Connaught (sp) but refrained and saved myself a £1000 loss.
Risky buying into a companies about to go bust but good returns if you pull it off. I've decided it's to risky for me, you really need to be on it and more experienced and id rather just play the longer game.
jeff m2 said:
I'm not currently invested in anything I consider high risk.
I agree completely with the previous comments on the outfits that milk and churn.
I do however quite often take 1 or 2% contrarian punts on sectors or single country funds.
Basically I'll look for something that I consider out of favour, beaten down and with a decent chance of making 10 - 15%.
There has to a good reason or scenario under whichthis country or sector can recover before I enter.
I also need to understand why it is currently in the toilet.
So if one where to look at Latin America or Argentina, an easy one to understand, the President in an effort to generate taxes put an export tax (yes export tax) on beef products like corned beef. Completely fxxcked the countries exports as the beef people started to grow soy. Chance of recovery not good.
Banks and finance in the US could prosper with a Republican President because of less selective attacks. But of course some companies like Goldmans are very heavy democrat supporters. So that can get a little complex. (controls lose the vindictive angle with GOP)
So while I will plonk my hard earned money on a few high return things, I try to make sure I limit the risk by trying to understand why stuff happens.
I also tend to treat these funds as I would an individual share, I have a target sell price.
Here we are at December, and I took my own advice and went heavy into US banks. Up 19% since GOP win. Not really all that risky really as they were good for a small rise with any fed action anyway.I agree completely with the previous comments on the outfits that milk and churn.
I do however quite often take 1 or 2% contrarian punts on sectors or single country funds.
Basically I'll look for something that I consider out of favour, beaten down and with a decent chance of making 10 - 15%.
There has to a good reason or scenario under whichthis country or sector can recover before I enter.
I also need to understand why it is currently in the toilet.
So if one where to look at Latin America or Argentina, an easy one to understand, the President in an effort to generate taxes put an export tax (yes export tax) on beef products like corned beef. Completely fxxcked the countries exports as the beef people started to grow soy. Chance of recovery not good.
Banks and finance in the US could prosper with a Republican President because of less selective attacks. But of course some companies like Goldmans are very heavy democrat supporters. So that can get a little complex. (controls lose the vindictive angle with GOP)
So while I will plonk my hard earned money on a few high return things, I try to make sure I limit the risk by trying to understand why stuff happens.
I also tend to treat these funds as I would an individual share, I have a target sell price.
Helps with my 10K Dollar loss on Europe
Which I'll carry.Now the risk is the possible financial disruption caused by lots of talk about the Electorial Circus not confirming Trump.
I am actually seriously considering going 80% cash.
I can do it without creating too much cap gain (as I manage my cost basis when the op arises.)
I've never gone cash before.
Any thoughts.....
I'm surprised nobody has mentioned options. Heavily leveraged options will can generate incredibly high risk, and occassionally returns.
Many a eager punter has been lured into FX options in particular with the promise of ridiculous daily returns that once compounded apparently generate huge annual returns. Obviously they gloss over the need to consistently generate those daily returns, the possibility of margin calls, and the fact that poor money management leads to most amateur (and even some professional) traders losing all of their capital.
As an earlier poster was trying to point out, and as I try and teach my finance students, there is a very important difference between risk and probability. Risk includes both the probability of the loss occuring and the value of that loss. A gamble (e.g. roulette) may have a high probability of a loss but a very small value of that loss. Total risk may be considered small. Returns could be large. It still doesn't make this a good option because the exepected value of the gamble is negative.
So I think what the OP is probably searching for is a low probability but high reward investment i.e. one with limited downside but with large or uncapped upside.
Focusing then on putting a fixed £1 at risk the expected value of the investment is probability x value/return. Over the same time horizon and with the same fixed investment 1% chance of getting £1000 is equivalent to 10% chance of getting £100 or a 50% chance of getting £20. An investor should be indifferent between these three which all have positive expected values versus the £1 investment.
Now, the OP may be risk loving and generate additional utility from the 1% investment but financially speaking they are equivalent.
However, in the real world the actual problem is the correct evaluation of the probability of the outcome. Professional investors and analysts spend more time on trying to ascertain this as this ultimately impacts upon the expected value. Getting this wrong is what makes many investments appear attractive and profitable, which then turn out to not be. Estimating the probability of rare events is much harder than estimating the probability of a more common event and the divergence between the real and estimated probability will be larger in the former. This leads to incorrect investment decisions even among risk loving investors.
In their worst form this leads to the so-called Black Swan theory.
Asymmetric information is the biggest driver of long run investor returns not because it changes the value but because it changes the probability. Insider trading doesn't alter the value of the outcome just the expected value by changing the probabilities.
Sorry for my very long winded, and likely boring, post. I clearly should be doing some work!
And on the issue of crowd funding it is indeed either a scam (in the form of the intermediary extracting profit) or a gift (e.g. like a Just Giving page): you should do it on the basis of expecting nothing but goodwill in return.
Angel and seed investment is legitimate and done correctly it *can* generate positive net returns but funds and investors who do this successfully have J shaped profiles i.e. they make up the losses on the very high proportion of investments that fail on 1 or 2 big returns. They often have to waste considerable amounts of time to realise these returns. They spend a huge amount of time researching their investments, competing to fund the obviously best opportunities, and then in supporting / beating / firing the management until exit.
But as others have said, the number one thing is the term sheet. They succeed in the long run because of the favourable terms they extract.
So to succeed you need three things:
- Enough capital to diversify your investments across numerous firms
- Enough time and specialised knowledge/skills to identify the best opportunities, secure them and extract the best terms
- Enough time to wait for returns to be realised through an appropriate exit strategy
Angel and seed investment is legitimate and done correctly it *can* generate positive net returns but funds and investors who do this successfully have J shaped profiles i.e. they make up the losses on the very high proportion of investments that fail on 1 or 2 big returns. They often have to waste considerable amounts of time to realise these returns. They spend a huge amount of time researching their investments, competing to fund the obviously best opportunities, and then in supporting / beating / firing the management until exit.
But as others have said, the number one thing is the term sheet. They succeed in the long run because of the favourable terms they extract.
So to succeed you need three things:
- Enough capital to diversify your investments across numerous firms
- Enough time and specialised knowledge/skills to identify the best opportunities, secure them and extract the best terms
- Enough time to wait for returns to be realised through an appropriate exit strategy
Edited by MadProfessor on Friday 16th December 10:11
Re:crowdfunding, it is important to remember:
1) Most of the retail crowdfunding is people refinancing credit card debt. The banks will lend to them at 18%, and some chump via a CF site will lend at 10%. There is a reason the banks charge so much for a revolving credit line...
2) The companies do not take a stake in the loans (on the websites i'm familiar with). Hence they could be lending to a bunch of complete clowns, and it is not their problem...as long as the public will lend to clowns, they are in business!
3) These look a lot like collateralised debt obligations from 2007. You are actually trading CORRELATION - do you know anything about retail credit correlation? No? Well don't feel bad, neither did the banks.
1) Most of the retail crowdfunding is people refinancing credit card debt. The banks will lend to them at 18%, and some chump via a CF site will lend at 10%. There is a reason the banks charge so much for a revolving credit line...
2) The companies do not take a stake in the loans (on the websites i'm familiar with). Hence they could be lending to a bunch of complete clowns, and it is not their problem...as long as the public will lend to clowns, they are in business!
3) These look a lot like collateralised debt obligations from 2007. You are actually trading CORRELATION - do you know anything about retail credit correlation? No? Well don't feel bad, neither did the banks.
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