Invest in what you understand

Introduction:

Stock Market, Gold, Real Estate, etc. are some of the asset classes which are quite intimidating and attractive. Right Selection of Asset Class and proper understanding of the concept of the concerned asset class has created several Millionaires & Billionaires, while at the same time, lack of knowledge & understanding of the asset class has also presented several losers in the market. Hence, in this blog, we will understand the concept of the Quote of the Legendary Investor- Warren Buffett, which goes like this- “Invest in What You Understand”. We will understand this quote from the viewpoint of this current market situation which also involves Cryptocurrencies where the same is classified as an Asset Class.

Understanding of How to Invest:

• The concept of cryptocurrency when it was launched initially felt that it could be a replacement of monetary policies.
• But now, this system does not make sense as the system is involving a high risk of loss with its infinite supply.
• If it is understandable about the cryptocurrency investment then it should not be a problem. But the retail investors who are investing in cryptocurrency just by hearing others without understanding about it can create a problem.
• This is applicable for investment in cryptocurrencies as well as for Equity too.
• This could be conceptually wrong if the investment in the stock is done by hearing from others or which is more discussed on a public platform without knowing about the company, their business model, financials and corporate governance, etc.
• It is always recommended to invest in the stock which you know well about that company.
• It was said that Mr. Warren Buffet never invested in technology companies. But he invested in the Apple company. He invested in that company when he understood the business model and got confidence in it.
• There is a finite supply of Bitcoin that has come down by 33% from its all-time high. Infinite supply currencies could be going down more. People knowing about the cryptocurrency will also be knowing the downward risk of this cryptocurrency. 

Conclusion:

The point is to invest in the stock only in which there is an understanding of the company, its governance, financials, and business model. It is always better to leave the opportunities that are not known. Hence it is better to invest in the stock in which you believe in. Some might believe in cryptocurrency hence they are investing as they know how this system is working. Most of them don’t know about the fundamentals of cryptocurrencies and the Money system as well. If the investment is done ignoring the above facts then it could be dangerous for the investment portfolio. Do investment based on proper research and with consultation with a financial advisor.