The third criterion is probably one you have not thought of but you can be sure that the manufacturers who might eventually license your product will be thinking of. You will have a much better chance of convincing a manufacturer to license your product if the benefits of your product are obvious. You may have a fantastic product but if the costs of educating the public on its benefits, why they need it and how it will make their lives easier, are too expensive, the manufacturer is likely to pass on your product no matter how terrific it is! If, on the other hand, the public will readily see the advantages of your product from its packaging or with minimal point of sale information, the manufacturer is much more likely to be interested in licensing it. If you plan to make and distribute the product yourself, it will be far less expensive and will involve less risk for you if it is something that consumers will immediately understand and desire without having to first be educated regarding the need it fills.
The second criterion that you should consider when determining whether to pursue a particular idea is the market size for the potential product. Obviously, if there is a huge market for your invention, if millions and millions of people will want to buy your product, that is best. You may feel “in your gut” that the product will have a huge market but that is not good enough. Do the necessary research to find out exactly how large the potential market may or may not be. You may need to get U.S. Census Bureau figures or check the circulation figures for magazines or trade journals for the area of your invention. Your local reference librarian can help you to locate sales figures for similar or competing products in business directories. Or, a good, professional evaluation should help you to determine the potential market for your invention.
Don’t assume just because you would like to have your invention that there is a large market for it. You may belong to the “Under 5’ tall pastry chefs club” and have invented a short baster that is easier for a diminutive person to use. In other words, the product is helpful to you and a few of your fellow club members but there would not be a large market for it.
It is also important to understand that there are many great ideas for products that are simply not patentable. Perhaps they are ideas that are in the public domain. That is, they are owned by the public. These ideas may have had previous patent protection that has expired or they could be items that have been offered for sale in the marketplace without ever having had a patent. If they were ever patented, they may not be patented again, or if they have been offered for public sale, they may not be patented. Perhaps they are too similar to something that is currently protected by a patent. Perhaps they are not unique enough in design to receive a patent. There are a myriad of reasons why a product is not entitled to patent protection. Before you invest your time and your limited financial resources, it is important to determine whether patent protection is even an option.
You can determine this by performing both a market search and a patent search. Market and patent searches are discussed further later. After you have completed each of those searches, it is essential that you obtain a professional patent search including a legal opinion of patentability before you proceed. Only a qualified patent attorney or patent agent can assess the ultimate patentability of your product.We also offers tips for low cost professional patent searches as well as how you may visit with a patent attorney or patent agent about your idea for little or no cost.
To do this exercise, you will need paper and pen or a word processor. If it feels safe, find another investor to work the exercises together. We often cannot see ourselves clearly in this area. A partner is very helpful. Do not use a spouse, family member, or dependent who has an economic stake in your investment success. Also avoid a broker, financial planner, insurance salesperson, or anyone connected with any investment product. Another investor, as interested as you in ending the chaos of her investment life, is the best choice. If you cannot find anyone interested, at a later stage you will want to elicit the help of a minister, priest, rabbi, therapist, or other neutral person to hear you out for an hour or so.
1. List all your investments that you can remember, including for each:
a. Approximate date of purchase and sale, if sold or disposed of.
b. Approximate cost of purchase and sales price, or current price if still held.
Being convinced that your emotions have affected your serenity in investing, you are now ready to do some work to find your comfort zone.
An investment inventory will show you who you are as an investor. In this chapter, I will first set out the instructions on how to write an investment inventory. This will be followed by some commentary on the process. Then you will read four examples of completed inventories so you can see how it is done, and that it is possible to do. After that, I will explain parts of the process in more detail to help you through any blocks you might have.
The inventory is a scientific process. You will write down your investing history and analyze it for mistakes and accomplishments. Thereafter you will avoid areas where you are prone to mistakes and emphasize areas where you do well. After you are finished, you will be amazed that you have never scientifically studied your investment process before. All successful businesses study their processes and improve on them. I had been living off my investments for more than 11 years when I wrote my first inventory. Today, I do not see how I went that long without ever putting investment process on paper. Now I make an inventory at least once a year.
The security backing a loan has a large impact on the emotional aspects of the loan. If the loan is secured by the same investment it was taken out to purchase, then a loss will be painful, but will not threaten your household. However, reckless speculators use second mortgages to finance options or future strategies. This creates stress on the household. A disastrous speculation will either require many years to pay off the second mortgage or lead to an eventual loss of the house. Even when the speculation is successful, overconfident speculators often fail to pay off the second mortgage and reinvest in another risky scheme.
A loan from credit cards or a personal line of credit can be equally stressful. If the investment does not work out, you must pay off the loan from salary or other assets. Credit card loans used to purchase tech stocks are common today in bankruptcy court. Stealth borrowing is troubling as well. You may believe that borrowing by a stock or bond mutual fund manager or hedge fund manager does not affect you. Whereas a personal line of credit would keep you awake at night, a leveraged bond fund allows you to sleep. This is fine if the fund is successful. However, leveraged funds are highly volatile and can quickly go under. You may be in for a month of nightmares.
Even when everything goes well, large leverage has a troubling side. Quick profits in a margin account can lead to overconfidence or even grandiosity. Grandiosity is a nice high for a while but often deteriorates into a sense of isolation and depression. Overconfidence and grandiosity can also sow the seed of their own destruction. Profits can lead to expanded margin and riskier investments and an eventual larger crash, deeper depression, and bankruptcy.
A large mortgage on a vacation home can ruin the fun of the investment. A vacation home with 10 percent down has far different impacts than a vacation home with 50 percent down. Large mortgage payments require a constant search for paying guests and the necessity to rent on holidays and other times when you would rather use the house yourself. A small mortgage lets you relax even when guests are scarce.
Borrowing is particularly hard if you are attached to your investments. Large borrowing shortens the margin for error. Smaller swings in value can destroy your equity and lead to loss of the asset. The intensity of emotion is high. You must have positive returns quickly and never drop below your equity value. Time shortens. For example, stock margin accounts are marked to market immediately. Your positions can be sold out from under you to cover your debt. Anger, regret, and disappointment are common with large borrowing.
Borrowing can also lead to long-lasting trauma. Some investment positions cannot be closed out easily or quickly. A mortgage will only be foreclosed if you fail to make payments even if the value of the property has dropped enough to eliminate your equity. However, a long period of paying the mortgage on an underwater property is quite painful. And the shame of returning a property to the lender is daunting. A forced foreclosure can also lead to publicity of your failure.
Borrowing has powerful emotional content. Offers of credit can cause your ego to soar. Many borrowers believe that now that they have credit they are somebody in the eyes of the financial world. Borrowing can trigger greed. Why put 30 percent down on a three-unit apartment when the same money can buy a 20-unit apartment with 5 percent down? Why be a little property owner when you can be big shot landlord?
Letting your ego and your greed run your investments works out emotionally for a few investors. Some investors are only happy with more investments, even though there are liens against them. Other investors are not happy with leverage.
Borrowing often causes investments and speculations to invade savings. For example, assume you have $100,000 in a money market fund as your savings and $100,000 in stocks as your investments. Your stockbroker offers to let you buy another $100,000 of stock with a margin loan. Suddenly you find several bargain stocks and decide to invest the $100,000. In theory, you have now borrowed against your investments. In practice, you have put your savings at risk. If your bargain stocks become better bargains or turn out to be no bargain but bankrupt, you must pay off the $100,000 loan quickly when you get a margin call. You must either preserve the remainder of your investments and deplete your savings or preserve your savings and deplete your investments. The saver side of your personality will be in trauma.
Because most savings values are stable, borrowers often use savings as collateral for investments and speculations. Second mortgages on the family home are common. Bank lines of credit secured by CDs and other bank products are widespread. Credit card debt, though unsecured, must ultimately be paid out of savings if investments and speculations fail. Before you borrow against your savings, consider how you would feel if your savings were suddenly stolen. Then consider how you would feel if the thief was you? Savers feel the powerful emotions of having their savings taken away but they do not always realize the cause is their own borrowing.
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