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Alternative Investments
We think the difference between speculation and investment should be defined by how the risk inherent in any investment is evaluated. The failure to properly address this risk will always impact the expected return on investment, regardless of the investment vehicle. In the case of the securities industry, whether it’s common or preferred stock, bonds, mutual funds, commercial paper, etc., the investor is literally buying a piece of paper with either a promise of generating future earnings or meeting future payment obligations. In any event, the investor has little knowledge as to the true income potential of the organization, or its contingent liabilities and/or unreported exposures. In most cases, there is little if any tangible assets supporting the actual investment or potential return. With respect to real estate there is at least, a tangible physical property with some inherent real value, and cash flow generation ability. Nevertheless, the real estate investor’s exposure can be just as dramatic as it might be in the securities industry. The key is the basis on which the investor determines an acceptable purchase price. If it is based on investing at a price equal to or below estimated replacement cost, on a worst case basis, then the investment is most likely very secure, over a reasonable time frame. If, on the other hand, the investor has just bought because he/she obtained a discount from the builder, then the investor is likely to face a substantial exposure – that exposure being the difference between the discounted purchase price and the Builder’s replacement cost, on a worst case basis. “
“Get Rich Plans have been the undoing of the
middle class”. ”
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