What is Invest, Then Investigate?
Invest, then investigate is an investment strategy in which investors purchase a stock first and then do research and due diligence second.
- Invest, then investigate is a strategy of buying into the stock before researching it’s history, fundamentals, and performance.
- It is in general a risky and speculative strategy that is more often referred to in tongue-in-cheek fashion by traders than it is actually practiced.
- Invest, then investigate can make sense for certain situations and certain investors.
Understanding Invest, Then Investigate
Invest, then investigate, or investing first and researching next, is a risky and speculative approach to making investment decisions. This method is often used by individuals who have either an unfounded hunch that a security's price will move in a particular direction, or who are acting on impulse. Any research or due diligence is performed after the position has been opened and the individual decides to either hold 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 doing any research than it does to actually invest first and then do due diligence later. When used as a joke it can be a variant on the idea of choosing investments by throwing a dart at a dartboard.
Invest, then investigate is an untraditional investment method 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 profits; if the position is unprofitable, the position can be closed for a loss. Famous investor George Soros is known to invest first and investigate later to avoid missing rapidly changing market opportunities. Many investors would view this method of investing as gambling and prefer, instead, to investigate potential positions first and then risk money to test the theory.
Risks and Rewards of Invest, Then Investigate
The most obvious risk of the invest, then investigate 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 give you the return on following it. Another potential risk of the invest, then investigate strategy is that others may lose faith in your judgment if you refuse to do any due diligence before putting their money into the market. Even if you become lucky and the investment pays off, the loss of trust may follow you with that investor.
In contrast, if no one has done much investigation of a particular opportunity, it is possible to get a great return without having to do much legwork to explore. An investment may be a hidden gem that no one knows about that is just waiting for you to invest in it, and the gains can be greater by buying in sooner and by skipping the time and expense of researching it.
Invest, then investigate may also make sense in situations where research, analytical, or other information and decision making related costs are high relative to the potential gains. In particular, for a high net worth, diversified investor, with a high opportunity cost for their own time and attention, opening a small position as a kind of trial run may be an economical means to collect information about a stock’s ongoing and possible future performance rather than spending the time to research it in depth before buying in.