What is Invest, Then Investigate?
Invest, then investigate is an investment strategy in which investors first buy a stock and then research and due diligence second.
Key points to remember
- Investing, then investigating is a strategy of buying a stock before researching its history, fundamentals, and performance.
- It is generally a risky and speculative strategy that is more often talked about ironically by traders than it is actually practiced.
- Investing and then investigating can make sense for some situations and some investors.
Understand Invest, then investigate
Investing, then investigating, or investing first and researching later, is a risky and speculative approach to making investment decisions. This method is often used by people who either have an unfounded hunch that the price of a security will move in a particular direction, or who act impulsively. Any research or due diligence is done after the position is opened and the individual decides whether to keep or close the position. This is the opposite of the Investigate Then Invest approach to investment decision making.
The use of the term invest, then investigate is often used humorously, as it makes more sense to joke about investing before researching than to actually invest first, then do your due diligence later. When used as a joke, it can be a variation on the idea of picking investments by throwing a dart at a dart board.
Investing, then investigating is an untraditional method of investing that defies common wisdom and logic. However, some investors may use this strategy to test the waters of a trade. If they invest and the position is profitable, they can add to it and potentially increase the profits; if the position is not profitable, the position can be closed for loss. Famed investor George Soros is known for investing first and investigating second to avoid missing fast-moving market opportunities. Many investors would view this method of investing as a gamble and would rather study potential positions first and then risk money to test the theory.
Risks and benefits of investing, then investigate
The most obvious risk of investing and then investigating the method of investing is the possibility of losing large sums of money on faulty investments. Hunches, statistically speaking, are often wrong, so a hunch probably won’t pay off if you follow it. Another potential risk of the then investigative investing strategy is that others may lose confidence in your judgment if you refuse to do your due diligence before putting their money in the market. Even if you get lucky and the investment pays off, loss of trust may follow you with that investor.
On the other hand, if no one has done much research on a particular opportunity, it is possible to get a great return without having to do a lot of legwork to explore it. An investment can be a hidden gem that no one knows about and is just waiting for you to invest in it, and the gains can be greater by buying earlier and skipping research time and expense.
Investing and then investigating can also make sense in situations where the costs of research, analysis or other information and decision-making are high relative to the potential gains. In particular, for a diversified high-net-worth investor with a high opportunity cost for their time and attention, opening a small position as a sort of trial can be a cost-effective way to gather information about the current and possible future performance of a share. rather than spending time researching thoroughly before buying.