7 Guides To Due Diligence For Newbie Investors In 2022

As an investor, you MUST be willing to do YOUR OWN DUE DILIGENCE AT ALL TIMES, before investing in any assets, and before using any platform to invest. This is the subject I'm dwelling on in this post. 

You should:

1. Know how to use the internet.

2. Use your Google search more often.

3. Ask questions, important ones.

4. Investigate to find out the facts.

5. Follow a trail when you see one.

6. Talk to people who know more than you.

7. Be familiar with general rules and standards within Finance and Technology. 

I will elaborate on these over the next paragraphs. 

1. Know how to use the internet

Beyond knowing how to use WhatsApp and your Facebook, Twitter or Instagram apps, you should know how to use the larger internet.

You should know how to use your internet browsers to find information you need on the web. The internet is a massive sphere of data, the good, the bad, and the ugly, the relevant and the irrelevant, the peaceful and the chaotic, and so much more.

Understand that social media is just a small part of the internet, and it often does not have most of the information you need.

For example, thanks to the internet, I can find and download the financial statements of any publicly listed company in the world. Did you know that you too could do that? Name the company, it can be found online. Authentic! 

Another one: I can access publicly released government data and peruse at random, or make an analysis from it. For instance, I have a detailed analysis of Nigeria's budget and performance data (2014 - 2020) that is based on data released by the Ministry of Finance and the Budget Office. The analysis was entirely prepared by me, but I sourced the data that I used from the internet, and it's all authentic. Based upon it, I can make certain investment decisions, and can authoritatively advice myself and others accordingly on certain finance and economy-related issues within Nigeria.

In fact, there are certain things that the government could say now and I would know whether it is actually workable or not, based on data that I have reviewed on the state of our economy. 

Do not underestimate the power that information can give you.

Furthermore, if a company says that they are doing a particular thing, you can find out the true position of things by searching the internet using your browser or mobile apps.

Oh and social media, these days, isn't just for socializing anymore. You can use them to find out necessary information about people, businesses, corporates, governments, and various entities.

As an investor, learn how to use the internet, and use it!

Today's education is on the internet.

Educate yourself.

2. Use your Google search and YouTube app more often

There is an 80% chance if you mention something to me that I know nothing or next to nothing about, that I will immediately Google it to find out about it.

There are some of my readers who think that I know so much, but what they do not know is that the major difference between I and them could just be that I am more ready to use Google at the slightest chance, while they aren't.

There is a lifetime worth of data that you can access simply by doing Google searches. For instance, if you want to know exactly how World War 2 started, or when the card services provider called VISA started operations, all that information is available on the internet, and can be found by you via a simple Google search.

I cannot count how many times that doing Google searches have saved me from investing in what was actually a well-packaged pyramid scheme that looked like a legit business. Let me give you some instances of what Google searches can do for you.

For instance, did you know that if you are in doubt about the legitimacy of a company XZY, you can use Google search to find out whether your hunch is true or not by simply Googling "Is XYZ company a legit company?" 

If you do so, Google will show you results of what different people who may have experienced that company have to say about them. Or it could should you articles that have been written about them. Or it could show you the website of that company. Or more. And you can get various info from examining all those search results. 

When it does show you those results, however, don't forget to read from the more credible sources first. As an investor, you should acquaint yourself with who the authoritative sources are within any locality of interest to you. 

For instance, if I'm searching about a business that claims to be operating in the US, I would be taking search results from American media sources in preference to Nigerian or other sources. This is why you should acquaint yourself with sources that are reliable. And you should also be able to identify legit government websites too in a list of search results. 

Another example of what a Google search can do for you is that if a company is claiming that they have started producing a particular product and selling in a place you do not have physical access to, you could search about it on Google to find out whether or not it's true. 

In addition, if you feel like text isn't enough for you, there is almost nothing that you cannot find that someone may have done a YouTube video about. So check YouTube too. 

Google is your closest and greatest access to data. Use it, more often!

3. Ask questions, important ones

The Bible says that in the multitude of counsel, there is safety. You can NEVER go wrong asking questions. And in the world of due diligence, "asking too many questions" is not a crime. So, don't be shy to ask questions about what you do not know or understand.

But, be careful. Better not to ask questions about what you can easily find using Google or YouTube, or what you can ask a friend or colleague about. It won't portray you well if you do so. Ask more of intelligent questions. Ask questions about things that you have searched for online but could not find.

And do this: Make sure you are asking the right person the right questions.

Some do not know this, so let me tell you now: You can ask anybody anything you want to ask them. Find that company's phone number online and call them yourself. Find their email address and send a mail. Heck, find their address and go check them out if they're in your city.

If you look hard enough on the internet, you can find the contact details of some notable people, such as their email address.

Ask authoritative people too. If the matter concerns technology, call your friend who is a savvy engineer and ask about it. If he or she doesn't know, then call another person and ask. If you would want to know about the legitimacy of the product offering of a company, then Google it, or call your friend who has a major in law. If it is an international business, call your friend who has a major in INTERNATIONAL law. Don't take chances with information gap!

When I first discovered Trove Finance, I first spent time ransacking the internet for any information I could find about them. I read various reviews written by different people. I read articles about them. I was still not satisfied, so I found their contact number and placed a call through to them. I found their address online and used Google map to locate it. But I couldn't go by myself to check them out due to my tight work schedule, so I sent my friend Ogochukwu to go check them out for me. I told her the questions to ask. She called me when she got there and after she left, and briefed me. This happened a few years ago. 

I hope this teaches you a thing or two about doing due diligence.

In the world of investing, IT IS YOUR RESPONSIBILITY TO BE SAFE. Do your due diligence, no matter who is involved. Use a proxy if you cannot do it by yourself.

4. Investigate to find out the facts

I once came across a crypto project whose project proposition was to launch satellites into orbit to feed back data to blockchain smart contracts and infrastructure. Cool idea right? Yes, but still looked sketchy to me, plus I am not very knowledgeable about the technology of satellites, but I knew one thing: Launching a satellite is financially and technologically capital intensive. So, I wondered what substance the leaders of the project had to deliver on it. And this led me to investigate the facts.

So, I called my friend, Uzoma (who is a more versatile engineer than myself) and had a lengthy discussion about satellite technology, and the level of finance that has to go into building and launching them.

The facts I discovered confirmed to me what I was already thinking: the project was a very tall order, and I didn't see commensurate substance in the team to deliver any time soon. So, I decided to invest just a little amount that I could afford to lose, instead of making a serious investment into the venture.

Today, I am happy that I did that because my small capital investment dipped, and isn't showing any promising signs of recovery anytime soon. 

Always investigate the facts to find out the true position of things, both in principle and in practice. 

5. Follow a trail when you see one

While doing my research about Trove Finance, I read where they said they were partners with DriveWealth LLC, so I didn't stop there. Rather, I started another Google search digging up information about DriveWealth and what it is that they do. I even went as far as discovering other partners that DriveWealth also has and explored their own business models as well.

In fact, in hindsight, I could have emailed DriveWealth too, or called them to confirm their partnership with Trove, but I guess I was satisfied with the information that I already got. Someone could decide to take it further by checking the registration status of DriveWealth in the US as a company.

This is how companies and businesses are vetted by doing due diligence.

It is not just Trove, I do this for almost every crypto project or company stock that I put under consideration to invest into. If you say or refer to something that I need to verify from a third party, I will go to confirm that information from the said third party or another source that is just as authoritative.

If you see a trail, follow it. You never know what you just might discover. Leave little to chance.

6. Talk to people who know more than you

No man is an island of knowledge. So, keep pride away from you when making investments is concerned. This will save you from potential heartbreak. 

If you don't quite understand something, read the document again. If you still don't understand, read it yet again, and again. I have had to read some documents more than five times before I could start understanding them.

Also, call someone else who understands better, and listen to them explain it to you.

I remember when I didn't understand how PancakeSwap works in crypto. It was my mentee, Dan, that explained it to me. 

Similarly, when I started having strong opinions about the prospects for semiconductor manufacturing in Africa, I had a chat with my friend, Esther who is a physicist, and discussed the prospects. She had her strong disagreements with me, but my optimism became even stronger, but this time, from a more informed position.

Talk to people who know more than you!!!

7. Be familiar with general rules and standards within Finance and Technology

You should be familiar with standard requirements in Fintech or whatever platform you are investing with or into. 

For instance, you should know that in Fintech products that are properly regulated by appropriate authorities, users are usually required to undergo a verification process called "Know Your Customer" (KYC), and you should acquaint yourself with the reason(s) why KYC is required and necessary for businesses of such interest.

In addition, if you are going to invest in the stocks of a global pharmaceutical company, then you should acquaint yourself with what the required modalities are in their field of operation, and whether they are living up to the standards as a company. You should also know who the regulators are in that field where they are operating too.

Always find out what you do not know because often times, they are the main source of risks in your investment venture.

I have written these to inform and educate you. I hope you've got it.

I hope that you not only see the need to always do your due diligence BEFORE investing, but that you are now informed about how to go about it.

Thank you for reading.

END.

Chukwubuikem Paul Anunaso is a civil/structural engineer based in Lagos, Nigeria. He is also the Editor of The Paul Anunaso Blog, and can be reached at anunaso.cp@gmail.com