The limits of your own expertise

One of the touted advantages of private investing is that you get to invest in things you know. So for example, if your background is in pharmacy, then investing in pharmaceuticals might prove not only advantageous from a knowledge standpoint but from an enjoyment standpoint, too. Believe it or not, investing can and should be fun, if you’re doing it right, of course.

However, investors should always be careful about valuing the kind of knowledge they bring to the table and whether it constitutes investment expertise. Let’s take pharmacy as an example again. Let’s say you’re a great pharmacist. You know pharmacology. But does that mean you know the business of pharmaceuticals? Maybe not. Even so, it does mean you can bring knowledge to an investment situation. Just don’t necessarily over-value it. If there are financial experts in the field of pharmaceuticals that you can use, by all means, do so.

You’re an investor, not a customer

Let’s take another more lighthearted example, this time provided by Nelson Smith in The Motley Fool. He says that his experience with the Tim Hortons food chain shaped his investment decision on the company, and in not so beneficial a manner.

Specifically, Smith says that he didn’t like the Tim Hortons store that opened up in his neighbourhood. The service wasn’t great, and his experience shaped his judgement about the company as a whole. As a result, he didn’t invest in Tim Hortons. And, what happened? Lo and behold, shares in the company rose 85 percent in the last three years, and quarterly dividends have tripled since 2016.

Stay disciplined

As Smith points out, he possessed a knowledge of the company that really was of no use to him financially. Sure, his local shop could use a customer-service overhaul. But, if he had stuck to doing due diligence on the company’s financials, and its potential strictly from an investment standpoint, he would have been much better off — as an investor, and not as a customer.

In fact, Smith’s experience, as well as our pharmaceuticals example, highlight a general axiom when it comes to investing: stay disciplined. Yes, personal knowledge can always be of use when investing. However, don’t over-value what you bring to the table, and make sure it doesn’t cloud your judgement when sticking to sound and shrewd investment decision-making.

ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.

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