Rules To Win In The New Economy
Successful high-net-worth (HNW) investors pride themselves in going against the grain – doing the opposite of what everyone else is doing. This approach has wisdom, and these investors are living proof that the strategy works. But, before going into what winning strategies these savvy investors adopt into their successful investing habits, let’s look at the other side.
The average investor is not successful. They do not beat the market and, when factoring in inflation, lose money annually on average.
Here are some of the common traits of the average investor:
- They speculate. They’re constantly trying to predict the future and to profit from it (i.e., buying low and selling high).
- They invest based on emotions. They’re driven by behavioral biases that influence their decision-making. They buy into internet and social media hype to see what everyone else is doing and typically follow the crowds. This is driven by both a need to be accepted and by the fear of missing out.
- They continually chase the “next big thing” – intent on landing the next Amazon or Google stock.
- They think short-term and continually look to hit a home run – ignoring the possibility that the game could be won from consistent and reliable base hits using a long-term strategy.
The result of all the traits that make up the average investor is irrational investment decisions. Investment decisions are often made because they’re convenient, or it’s what’s jamming the airwaves instead of what makes economic sense.
On the flip side, smart investors take a different investment approach.
In the book “Richer, Wiser, Happier: How the World’s Greatest Investors Win in Markets and Life,” William Green outlines successful investors’ investment traits and the investment rules they religiously live by.
- In investing, patience is your biggest virtue. You can be a successful investor only if you are patient with your investments.
- Sentiment and behavior are your biggest enemies. To succeed at investing, you must be able to control your emotions and make rational decisions.
- Trying to predict the future is redundant. Instead, it would be best if you focused on trying to learn from the past.
- A successful investment mantra is to buy cheap. A better mantra is to buy quality at cheap prices.
- Always question whether the price you are paying for the investment is reasonable.
- Whether in life or in investing, there is no substitute for hard work and discipline.
The book spotlights several successful investors and their investment habits. The one quote that stood out to me was from billionaire Monish Pabrai who said, “When it comes to investing, the question to ask is not, ‘how to make money,’ but ‘how to compound money.”
It’s no wonder many of the world’s most successful inventors gravitate to private alternative assets like investments in private companies (i.e., private equity) and commercial real estate. These assets are ideal for compounding money while meeting many other standards smart investors seek in an asset.
It’s no secret that savvy HNW investors zig when everyone else zags. While the average investor is clamoring over meme stocks of worthless companies, smart investors ignore the noise. These investors don’t let emotions drive their investment decisions. They understand that investments that get all the attention and are driven by market noise also do not have strong underlying fundamentals. They prefer assets with a strong foundation.
What constitutes a strong foundation? Investments with strong foundations align with HNW investment objectives. They obey basic economic principles and old-fashioned supply and demand – where the value of a good or service is a function of economics and not one of emotion.
Wise investors like the “quiet” investments – investments that don’t attract the attention of social media or are “influenced” by instant analysis, self-promotion, or talking heads. These “noisy” investments are driven by hype, irrational mobs, and the media – more than by reason and sound fundamentals.
Smart investors avoid investments that are unpredictable and susceptible to market volatility. They prefer certainty.
Why do they prefer certainty, and how do they achieve it?
Smart investors prefer certainty because they can plan around it and make solid judgments and projections about the returns on their investments. That’s why they look to the past when evaluating investment prospects. They look for a track record of success and seek to rely on that track record to generate future returns.
What do smart investors insist on from their assets to achieve certainty?
- A Long-Term Track Record of Performance.
- Insulation from Wall Street.
- Inflation Hedge.
- Tax Benefits.
Private equity and commercial real estate are the assets HNW investors prefer because they possess the attributes that these investors value most and that best align with their investment core values.