This is integral with my investment decisions. And it should be with you.

What’s the Number 1 thing that Warren Buffet looks at before investing? I ask this question all of the time - and people always come up with answers such as:

1. Return On Investement
2. Length Of Investment
3. Sector Outlook
4. General Market Outlook

etc etc etc…

And generally even within a group of 30 SMART intelligent entrepreneurs and investors the true answer doesn’t come up.

The true answer is: Opportunity Cost.

What ELSE can you do with your money instead of investing in this? You should write that down. Because especially in this economic cycle - you need to be able to analyze opportunity cost. Here’s my top areas where I analyze my opportunity cost when looking at an investment opportunity:

1. Return On Investment - is there anything else that this money can be used for that would produce a higher return?

If the answer is Yes then…

2. Time - will this other investment opportunity take more time or less time than my original plan? If LESS then great I go ahead to point 3. If MORE then I need to sit down and analyze whether the extra return is worth the time.

For example - if I can make a 6% return with Investment 1 and it only takes me 6 hours to do this I can comfortably say that I can return 1% per hour.

But say Investment 2 can generate me a 9% return but will take 12 hours of my time - then my Return Per Hour drops to only 0.75%.

So is it worth my while to do this? For that point number 3 comes in.

3. FUN - Which opportunity can I have more fun with, which one will help me grow more and learn more? So by this stage I know that both opportunities are worth pursuing but one just slightly outshines the other one in terms of Return On Investment and Return On Time.

So now - which one is more fun? And if the one with a less Return On Time is more fun and I can learn more - then is it worth it?

OVERALL

This is just MY model for analyzing my opportunity cost. It involved TIME & MONEY & FUN. I think it’s very important for you to have fun - because this keeps you motivated. Yes granted - if I see that I can make a 12% return and it only takes 1 hour of my time and it’s NOT fun at all - I will still consider it.

I hope this helps - please leave comments & questions below.

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