You’ve likely heard the phrase
“if it seems too good to be true, it probably is“.
I could spend a whole book chapter unpacking that piece of received wisdom, in fact I shall do one day soon – it is fascinating !
What’s going on here ?
- Seems. It’s a subjective word, based on someone’s particular experience somewhere. Fire can burn you so stay away from fire.
- Probably. That implies a risk assessment. Risk analysis is vital for intelligently assessing an investment opportunity, but this is a mathematical and statistic process: research, assessment, conclusion.
So a more helpful, but less catchy, phrase for an investor might be:
“If an investment seems to offer higher rewards than I would expect, I need to check it thoroughly before drawing a conclusion”.