Common Pitfalls in Investing by Sanjay Patel

  • Posted by: Sanjay Patel
  • 04th Apr 2016

Because I handle so much of the investing side of things here at Chalak Mitra Group of Companies, I wanted to take a moment to point out several common pitfalls that I’ve found along the way. Investing in a business takes serious research, but all too often, individuals leap headfirst into an investment opportunity without taking the time to really look into what they are getting themselves into.

It’s easy to look at things like gross revenue and think that these figures are what you’re working with in terms of return on an investment, but there is so much more going on behind the scenes that will affect the outcome. Out of this revenue come things like overhead costs, vendor expenditures and all kinds of related expenses that cut the profit margin, or what is left after expenses are paid, to a very narrow figure. This is why, when you hear about corporations bringing in record-setting revenues, there’s much more to the story and the company is likely not bringing in near as much profit as you think.

How Growth Affects an Investment

When you invest in a growing company, you have to also understand that, as the business grows and brings in more revenue, it will also incur changes in expenses. For example, in the restaurant business, opening a new location requires a lot of money. So, this restaurant may bring in a lot of money over time, but before it can turn a profit, cash has to go out to get the location built, to hire and train employees, to order supplies, to get vendor deliveries to maintain brand consistency and a whole host of other costs that may take years to be recouped.

Look for Strength in Investing

Another thing that I advise when considering an investment is key indicators for strength. At Chalak Mitra Group of Companies, I am one of the company’s largest individual investors, and I’m in this position for two reasons. First, I believe in the company and its partners. I believe in their vision and shared passion for service. Second, I know that I can show strength to investors by letting them see that I not only work with CMG, but I believe in the company so much that I am personally invested in a major way. I encourage you to always look for signs of strength in a company before investing.

Never Be Afraid to Ask Questions

Although being an investor myself helps me to provide other investors with confidence, it can also be a double-edged sword. Many times, I’ll speak with a friend or family member about an investment opportunity, and because I’m close to them and because I’m invested personally, they just take my word for it. No! I want you to grill me, ask me questions and really investigate the opportunity. This goes for anyone who plans to invest in something. Never be afraid to ask questions and really get to the details about the opportunity. Far too often, people will just trust investment advisors to work in their best interest, but without doing the homework, you really can’t make good investment decisions.

Sanjay Patel