March 8, 2012

Bad Investments Cost More Than You Think

I had a client that put well over 100k into a chinchilla farm.  I had another client throw real money to buy Ostrich eggs and had a friend sink money into a 'B' movie.
Of course, I had many clients lose all their money buying into sure things on the pink sheets, OTC bulletin board, private placements and Canadian Venture Exchange.
The commonality is obviously stupidity.  Bad investments cost you more than you think.  The monitary cost is hard to measure.
Sure you can look at whatever your investment was and write it off versus gains in another year but its more than that, its what we call opportunity cost which is simply the next best alternative.
For example, say you sank $100,000 into one of the above investing disasters fifteen years ago.  You would have missed out on fifteen years of growth at 'X%'.  Assuming just a measily 2% would be $134,000 today.  At 10%, you'd be missing $417,000 today, not just your original 100k.
So when looking at investments, keep the lost opportunity cost in mind.
Remember that successful investing has as much to do with not losing money as making money!