8 Traits for Investing Success
Investing is not easy, and few people do it well over an extended period. The research documents this outcome well. Despite the evidence, there are those investors who have delivered consistent performance over decades. These unique investors perform in markets both public and private; from identifying value, to improving business operations, or understanding strategy. These investors share three core beliefs: people that excel in their field of expertise deliver value; business ownership over the long-term is the engine of growth; and that opportunities arrive when others see uncertainty. Eight actions of investment and business management help to express these core beliefs: focus, efficient, search, trust, inspire, value, align, and lead.
People deliver expertise. The essence of successful investing is people, whether it is through the ideas they create or the expertise they provide in managing a company or portfolio. People can deliver the insight into a transformative idea in venture capital, efficient business operations in private equity, or the identification of value in public markets. The precise field is not the value proposition: it is the people who operate there who provide the value. Partnering with experts enables everyone to focus on their expertise and permits value to arrive in time.
Business ownership is long-term. Growth rates vary through time; however, there is little uncertainty that over the long-term growth is best captured through the ownership of well-managed companies. While diversification provides the opportunity to manage risk, focusing on the details of a well-operated company or the particulars of the investment can provide equally useful tools to manage risk. This focus can help to reduce the dilution of good ideas while achieving effective risk control.
Opportunity is time-dependent. While there is no certainty in when opportunities arrive, those investors prepared to enter the market when dislocations occur and fear is the mantra of the average investors, will find that long-term rewards greatly outweigh short-term uncertainty. If business remains the locus of value generation, then opportunities will present themselves to the disciplined investor with the people able to identify value, and its sibling opportunity, when the time arises.
Focus. Expertise is earned. Is there focus? Investment success requires focus. Do they focus on the customer? Is the portfolio focused on their investment insight? A business without focus will lose touch with customer needs and slow innovation. Equally, a portfolio ensures average returns when it is overly diversified, which an index fund more efficiently achieves. Focus enables the development of expertise and reduces the risk of strategic drift in the business or the portfolio. Ensure that the focus is on their core capabilities and partner with the best when requiring other expertise.
Efficient. Limited resources. Is it efficient? The nature of a business is to find a way to do more with less. Does the business operate efficiently? Are portfolio costs well managed? A well-run business spends money only when necessary to run the business, improve the customer experience, or develop new products. A business and investor should always ask if the goal is achievable without spending money. Be frugal with time and resources. It is easy to find ways to spend money; the best investors only spend what is needed.
Search. Questions have answers. Do they search? There are challenges in business and investing. Begin with first principals and question everything. Why does this action occur? What are the assumptions? What will the future resemble? What will people need? Seeking knowledge will naturally lead to new opportunities. Independent thinking and questioning of first principals are the means to achieve knowledge. The future reveals itself from this foundation.
Trust. People work together. Is there trust? Both business and investing requires working with people. Does the business build trust with their products and services? Does the investor trust the manager to adhere to their investment thesis? Operating a business efficiently and delivering on the promise to the customer will build trust while adhering to an investment thesis through good and bad times shows that the investment managers trust their process.
Inspire. People need inspiration. Do they inspire? A business needs inspired people to deliver an excellent customer experience. An investment team needs motivated people to achieve results. What is the corporate culture? Are they inspired to achieve a common goal? Success requires teams working together towards shared goals while meeting the needs of the individual stakeholders. Inspired teams are motivated to innovate and deliver results.
Value. Prices are numbers. Is there value? A bargain basement find can be a bust or a diamond in the rough. Exorbitantly priced can be a colossal waste of money or the deal of the century. Value is derived from operations, through management, and through understanding something that others fail to see. Finding value requires the focus to search for answers. Investment leaders discover the value proposition and ensure that chose the best vehicle to deliver the outcome.
Align. Incentives matter. Do they align? A substantial alignment of interest provides results that lead to business and investment success. Whether linking the individual and team performance to the investment portfolio, or the external investment managers fees to their fund performance, alignment of interest ensures that everyone is rowing in the same direction. A focused team that is inspired and shares aligned interests can deliver extraordinary outcomes.
Lead. Following is average. Do they lead? Investment success requires leaders to inspire change and adapt to the unexpected. Leaders see change as an opportunity to learn, extend their expertise, and adapt to a new vision. Leading investors keep their teams focused in search of the undervalued opportunity. Leaders define a vision for the future and provide their teams with means to succeed regardless of the outcome.