Seven Questions for Your First Investment

Investing is a gamble. In 2000, Fortune published “10 Stocks to Last the Decade”; by August 2014, the suggested portfolio (which included Enron) had an average return of -59 percent. Hindsight may be 20/20, but that’s not a clarity you can afford when you’re just starting out.

Brian Nelson has gained a lot of insight through years of careful investment, encountering setbacks and success. As cofounder of Nelson Brothers, Nelson specializes in investing in student housing and enjoys guiding others in seeking out potentially wise investments. Here are 7 tips from Nelson for those getting their feet wet and looking at prospective investments.

What are your goals?

Before you can even begin evaluating prospects, decide what is most important to you. Whether it is capital preservation, income, growth, etc., you need to be sure that your values are mirrored by the company you choose to invest in.

A great investment isn’t always about finding the best company. More often, it is about finding the company that is best for you. “When working with a new company or opportunity, does the firm put your needs and goals first, or are they focused on their own agenda?” says Nelson. “This may be a harbinger of things to come. Great, long-term oriented firms start the relationship by learning more about you and what you’re looking for. That way they can make sure they’re attracting investors with the same ideals and values. If they understand your values, they can use that as a governing compass when it comes time to make big decisions.”

What is the company’s track record?

“How long have they been in business? How many deals have made them money? Have they defaulted on loans?” Nelson says. By law, companies have to provide specific information when they make stock or bonds available for sale by the public, and again periodically thereafter. If you can’t find anything, that’s an immediate red flag.

Is the company growing?

It’s a simple enough question, but easy to overlook. It doesn’t refer to stock growth alone. Is the company hiring? Are they still a single location, or have they opened new offices across the state or globe? The more a company invests in its own future, the more comfortable you may feel investing in them.

Do they have a niche?

A key to lasting success is a strong, self-replenishing customer base. There will always be families with children to fill the rides at Disneyland. Dating sites will never run out of single adults looking to mingle. And every year, new students rush to universities around the country.

“Student housing is anchored by century-old universities and strong track records of high occupancy,” Nelson says. In fact, an estimated 20.4 million students are currently attending colleges and universities in the US, an increase of roughly 5.1 million since fall of 2000. Look for a company serving a similar niche: one that’s on the rise and with a need that has to be met.

How accessible are they?

The easiest way to determine this is to reach out yourself. If you call their listed phone number, does anyone answer? Or are you immediately transferred to a machine? If you reach out through email, how long does it take for them to answer? Is their website appealing and intuitive, or is it hard on the eyes and difficult to navigate?

How is their reputation with clients?

“Do they have a client list that is expanding through referrals,” Nelson asks. “Is the client database expanding?” This may be harder to gauge as companies guard their client information. But a trustworthy company will have at least customer reviews for potential clients to peruse. At the minimum, reach out to these past/current customers to understand how the company treated them.

How does the company communicate with investors?

The company has a responsibility to communicate with investors. However, not all CEOs are great at it. Learn how the company will keep you and other investors informed. Whether it be through reports, conference call updates, or in-person meetings, the most important thing is that these reports are regular. The more the company updates you, the more engaged you can be.

Done blindly, investing is a roll of the dice, and those dice can land on an Enron. Done with careful investigation and planning, and you’ll have a better chance of being able to look back on your investments with satisfaction.

Securities offered through Emerson Equity LLC, member FINRA/SIPC. Emerson and Nelson Brothers are not affiliated.


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