If you ask anyone the question – Which is one of the most popular shows on TV today and the answer is Shark Tank. The show is in its second season and its popularity is only increasing. While this show is a wealth of opportunity for entrepreneurs across the country, it is also a huge opportunity for investors to learn key investment lessons from the sharks themselves. Here are a few such takeaways from the show to create a healthy investment portfolio.
Read More: Which are the common investment mistakes to avoid?
Lessons for stock market investors
Shark tank has tried to bring the nuances of the business right into our living rooms giving valuable lessons on investing and business planning. Some of the key investment lessons to be learned from Shark tank are mentioned hereunder.
Know the risk appetite
The first rule of investing is to know the individual risk profile. Stock market investments are highly risky but they are not limited to investments in pure stocks. There are many investment options with varied risk profiles that can cater to a diverse investor class. Therefore, investors should invest only in securities that match their risk perception. This will help them create a better investment portfolio that can match their financial goals
Create your portfolio based on your own research
There are many investment gurus and top investors in the industry who have created a name for themselves through strategic investments over the years. Many investors believe that they can make money by simply following their portfolio and not taking any extra effort. This is one of the biggest mistakes an investor makes.
One of the golden rules of investing is to do your own research before taking a plunge. This will help in understanding different securities available on the market, their risk and return, and their investment horizon. Investors can then choose such securities that match all these parameters and create their unique portfolios. Listening too much to the market buzz or blindly following others’ portfolios can lead to disastrous consequences.
This is very clear in Shark Tank, where each of the investors decides to invest/ not invest in a company based on their own research and understanding. For individual investors, it might not be possible where they should go with the advice of a SEBI Registered Investment Advisor.
Invest in businesses that you understand
The line by famous shark Namita Thapar ‘This is not my expertise’ has become one of the catchphrases but is also the primary rule of investing. It is also one of the key principles followed by Mr. Warren Buffett and he prefers to invest only in businesses that he understands. The philosophy is simple, when you invest in businesses that you understand, you can understand the market cycles or the product cycles, demand for the product, its competition, and thereby its pricing more clearly. This helps in understanding the key entry and exit points of a business that are crucial for any smart investor.
Understand the fundamentals of the company before investing
A company can be a market leader or achieve profitability only with the backing of strong fundamentals. There may be a temporary buzz around a product or a company but if the fundamentals are not strong, it will not survive in the long term. Therefore, it is imperative to understand the key ratios of the company and have a thorough fundamental analysis of the target company before investing in it.
Do not ignore the management of the company
There have been many cases when sharks have said that they do not understand the product completely but have been impressed by the entrepreneur or the person at the helm of operations. This has also been one of the considerations for investing in the company for many sharks. This highlights the importance of the management of the company and the team responsible for the daily workings and ins and outs of the business. Therefore, is highly important to ascertain the quality of management and their key aspects like experience, expertise, approach, and understanding of the business before taking a bet on their business.
Take the help of professionals when not sure of your own expertise
There have been many aspiring entrepreneurs who have a more or less successful product at hand but lack the experience or expertise to take it to the next level. This is where they need our beloved sharks and a valuable lesson to take from this is to take the help of professionals to create a healthy investment portfolio whenever needed.
Investing requires understanding the nuances of the market, its price and volume movements, trends, and possible reversals. It may not be possible for an average investor to understand all the aspects of the market thoroughly or may not have the necessary time to devote to investing from scratch.
There are many professional portfolio managers and wealth managers available today that help in navigating market volatility and creating a healthy investment portfolio for investors that suit their financial needs and goals. Investors should therefore seek professional help whenever needed to meet their financial goals most efficiently.
Invest in businesses that have a stable market and scalability
Many newage products and services have been pitched on the show that has amazed the sharks and at the same time left them grappling with the vision of the entrepreneurs. The key lesson to take away from this is to invest in a business that has a sound future. A business that can be easily scalable to meet the growing demand will have a brighter future and the ability to deliver higher profits than a business that cannot be scaled. Therefore, investors should always invest in businesses that have a stable or growing demand and the ability to meet such demand.
Conclusion
Shark Tank has more or less brought business and investing 101 right to our doorsteps. Lessons to be learned from the show can significantly improve the understanding and approach to investing for an average investor. Therefore while the show has created ample opportunities for young entrepreneurs, investors can also learn key investment lessons from sharks and make a successful investment portfolio.
FAQs
No. A business with weak fundamentals will find it very difficult to survive and be profitable in the long term
The key essentials to understand before investing in any security are its risk-return ratio, investment horizon, and the capital investment needed as well as the payment schedule for such capital investment.
Market sentiments drive market trends for securities. However, focusing too much on market sentiments can lead to short-term losses and lost opportunities to make long-term gains. Hence, it is important to understand the fundamentals of any security rather than focusing on short-term market volatility.
A management that is not capable enough to understand the business and manage it with utmost expertise will ultimately be detrimental to the interest of the investors. Hence, institutional investors focus on the management and promoters of the business along with the business itself.
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