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control of investments

Control: Key to Investing Wisely

Life has a way of teaching you critical distinctions and life lessons through painful experiences. We often pay heavy tuition fees in the process for graduating from life’s University of Hard Knocks. Some six years ago we purchased a manufacturing company that was involved in heavy steel fabrication. We invested significant resources into the business. In the initial stages we were significantly involved but later due to a work reassignment we were distant and had minimal control on the business. The loss of “on the ground” leadership control even though we were the sole shareholders allowed the professional staff to be the de facto leaders in control of the business. With the loss of control on the investment we lost significant value. This taught me a lesson when it comes to investment: When it comes to significant investments insist on retaining significant control on your investment.

Like most humans it takes time to learn vital life lessons. A while later we invested in a partnership in which our partner was more competent within the field of our investment and we delegated the control of the investment to that partner. We were left with minimal control of how the asset was managed although we were either consulted or informed on decisions. While this time the investment did not necessarily lose money, key deadlines which were essential to our plans were not met and returns we expected remained as moving targets. At least this was not a complete write off as the first investment but the returns were seriously compromised because we lost control of the investment. Fortunately at least the investment closed off two years later successfully with a reasonable return. If we had not lost control of the asset, the returns could have been higher.

When I look back on the issue of control I realized that most corporates when they invest significant funds into another corporate one of the first thing they do is to insist on both management and board control or at least representation. The main reason is that they need control of their asset.

Many people in Zimbabwe have lost money to bogus real estate agents. Because they lost control of their money. They should have insisted on having their funds placed under the control of a conveyancer as Trust funds until the title deed is secured. Because of this oversight many have been sold assets which the seller did not own. This is the main reason why astute investors insist on the money being placed on deposit with the lawyer and only paid out to purchaser when the title is transferred. It is to maintain control. I repeat: In investments once you lose control of your asset you have lost the asset.

Many others have been swindled through nice sounding and promising deals: the catch- they had to release their hard earned money to the trickster before receiving the benefits of the transaction. They lost control and therefore lost their wealth.

A critical key success factor for real estate is Location. Location and Location. Similarly I am now convinced that a critical success factor in investing is Control. Control and Control. Do not release your hard earned money into an investment that you do not have control over. Once you lose control you lose the investment.

The next time you are asked to invest whether on the money market or any other fabulous market: Rule Number One: Check whether you can retain control over the asset or the promised benefit. If you lose control in investment you have lost the investment.

I have seen some wonderful investment opportunities on the Internet that involve incredibly unbelievable returns on investment, but the first thing is that you lose control of the investment. These in my opinion are NO GO areas. Some have lost money on Foreign Exchange trades on the internet. Others have lost money in investment schemes that required that they deposit their money with a person they did not know but promise significant returns. Most financial scams are premised on loss of control of your asset. Never give up control of your asset to a stranger.

I have learned my lesson and established the following as the first rule of my investment strategy: Never lose control of your asset in investing! Always ensure control systems are in place.