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When to invest in one "absurd idea" and when not to

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If Wall Street had existed when Galileo said the earth was round, no one would have invested in his “stupid idea.”

In the technology sector, things have happened, not so dramatic (because poor Galileo was killed), but many today regret not having bought shares on time.

What if you had invested $ 1,000 a decade ago in Tesla? Today you would have $ 137,000.

But beware, the stories of those who have lost money are more common than those of those who have won.

And, furthermore, not all investors act with the same logic. There are, broadly speaking, three main profiles: conservative, moderate and risky (also called aggressive).

Andy Kessler, stock market analyst specializing in the technology sector and columnist for the newspaper The Wall Street Journal, is one of those who recommends launching into adventure.

Author of books as Wall Street Meat(Wall Street meat) andEat People (Eating people) and founder of the venture capital fund Velocity Capital, Kessler argues that if you see an opportunity that no one else believes in, you should trust your opinion.

“My advice is always to invest in the mist”, affirm, especially when others are disbelievers.

He is an advocate of investing in ideas that others consider stupid. But beware, Kessler does not recommend this strategy for those who want to make a quick buck.

Rather, their argument is to invest long-term, even with the prospect that that stock may stay low or roll back for a few years before taking off.

And long term … it can mean decades.

The iPhone in 2007

One of the examples it provides is the story of the iPhone’s market entry in 2007.

The first reaction of many was: “Write on glass ?, impossible, ridiculous”, while they clung to their BlackBerry.

Kessler insists on not dismissing something that sounds outlandish out of hand – it’s worth thinking about, investigating, and then deciding if it’s really stupid, rather than killing the idea in one fell swoop.

In the case of the technology sector, the analysis should consider to what extent the product has the potential to improve its performance and, at the same time, reduce your production costs.

Even things that are not controversial in origin should be considered “suspicious”.

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When entrepreneurs need to get financing, typical style Silicon ValleyThey try to “sell” their brilliant ideas. And some investors, who have enough funds to take risks, go on the adventure knowing that perhaps this project could be a failure.

Or they buy shares in companies that have not generated any returns, such as air taxis, hydroponic vertical gardens, or space travel.

When not to invest in a stupid idea

The key point is that they are people with “financial back”, that is, a lot of money.

They can afford to make aggressive bets because if they lose, they haven’t played all for all.

They take calculated risks. They do not gamble on the house they live in, or their retirement savings, as might be the case with a novice investor who plunges into the void with no cushion to cushion the blow.

“To take investment risks you have to be aware,” Manuel Romera, director of the financial sector at IE Business School in Spain, tells BBC Mundo.

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It doesn’t matter if you have a large wealth or a small one, he adds, “you must know the financial metrics.”

And for that, in addition to studying or getting advice, he points out, it is necessary to reduce risk by getting all the information about the company where you want to invest.

“Analysis is the only thing that can justify taking risks”, aim.

In that sense, he argues, “investment opportunities go far beyond technology, biotechnology or renewable energy companies,” which are some of the most fashionable assets.

The problem is that the novice investor can be dazzled by lights that are too bright.

In that scenario, it is not worth investing in an idea that “seems stupid” because ultimately, it can end up being really stupid.

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