Dan Dobry

Due Diligence for Beginners

Due diligence is an investigation, audit, or review performed to confirm facts or details of an investment. In the financial world, due diligence requires an examination of financial records before entering a proposed transaction with another party.

My post will discuss some steps you should consider before investing. Performing this due diligence will allow you to gain essential information and vet out a possible new investment.

The steps are organized so that with each new piece of information, you’ll build upon what you previously learned. In the end, by following these steps, you’ll gain a balanced view of the pros and cons of your investment. This could assist in making a rational investment decision.

Managers’ Experience and Track Record 

The first step is for you to form a mental picture or diagram of the proposed manager you’re researching. Past performance does not guarantee future results but looking at track record is one way to gauge a manager’s expertise. How has the manager fared in prior years? Did they show responsible custodianship over investors’ funds in the past? What does their portfolio say about their investment biases? How is their portfolio weighted? 

Revenue, Margin Trends

When you begin looking at the financial numbers related to the investment you’re researching, it may be best to start with the revenue, profit, and margin trends. 

You Should also review profit margins to see if they are generally rising, falling, or remaining the same. 

Understanding Trends and Sectors in Real Estate investments (for example) 

The Covid-19 pandemic has accelerated disruption in virtually every corner of the global economy— for instance, global real estate is no different. What has traditionally been a slower-moving sector, driven primarily by demographics and local economics, now sits at the epicenter of profound changes in how people live, work, shop, and communicate.


More than two decades ago, the arrival of “dot coms” set in motion profound changes that have touched every industry, including real estate. Demand shifted from retail centers to warehouses and data centers, while more flexible work arrangements changed the dynamic for office space.

Real estate is reinventing itself to serve its original purpose—to facilitate commerce, store goods, and provide shelter—but adapted for a digital age. While technology has shifted real estate demand from physical retail or office space to data centers, cell towers, and logistics facilities, it will create winners and losers in real estate.

Given that real estate has one of the lowest technology adoption rates among global industry categories, real estate companies and investors have a significant runway to reap the benefits of increased integration.

ESG is Here to Stay 

The world’s largest businesses, governments, and investors are committing to achieving carbon neutrality by 2050—and this has significant implications for global real estate.

While the growing focus on sustainability is a global trend, it is important to note that there are regional differences due to existing norms and new or expected regulations that mandate energy efficiency.

Healthcare Facilities and Social Housing 

Social housing investment trusts offer retail investors the opportunity to invest in a sector that has to this point largely attracted institutional investment. The listed structure breaks down barriers for everyday investors looking to invest in a good cause while providing a steady income.

Define Expectations

This due diligence step is a sort of “catch-all,” and requires some extra digging. You’ll want to find out what the consensus revenue and profit estimates are for the next two to ten years, the long-term trends affecting the sector. News about a new product or service on the horizon may be what initially interested you in the investment. Now is the time to examine it more fully with the help of everything you’ve accumulated thus far.

Understand the Risks

Setting this vital piece aside for the end ensures we’re always emphasizing the risks inherent with investing. Make sure to understand both sector risks and specific risks. Consider the liquidity risks. Are there outstanding legal or regulatory matters? Is the strategy eco-friendly? What kind of long-term risks could result from it embracing/not embracing green initiatives? Investors should always keep a healthy devil’s advocate mindset, picturing worst-case scenarios and their potential outcomes on the strategy.

Never Be Afraid to Start Over with a Fresh Idea and a New Strategy

Once you’ve completed these steps you should be able to evaluate an investment’s future potential and how the strategy might fit into your portfolio and align you’re your life goals. Inevitably, you’ll have specifics that you will want to research further. However, following these guidelines should save you from missing something that could be vital to your decision.

Veteran investors will throw many more investment ideas (and cocktail napkins) into the trash bin than they will keep for further review, so never be afraid to start over with a fresh idea and a new strategy. There are literally tens of thousands of opportunities out there to choose from.

About the Author
Dan Dobry was the founder and a director of the GlobalNET Investment House, he was one of the founders of the Union of Financial Planners in Israel (UFPI) and served as the first Chairman and President of UFPI. Dan was the Global Council Representative for Israel for the Global Community (FPSB) from 2012 - 2018 and was a member of the Committee for Standards and Qualifications for the European Union (SQC) until December 2021.
Related Topics
Related Posts