If there is one thing all of the world’s best investors have in common, it is how they all have a set of rules to follow. Investing without a set of rules or guidelines is not going to get you anywhere because your investment decisions lack structure and focus. If you want to develop a strong structure and add more value to your decision-making, then it is a good idea to look at the way the best in the industry invest.
Understanding the investment lessons and rules some of the greatest minds are using in their investment strategy can help you find the right tools to boost your own investment approach.
‘Learn from Your Mistakes’
You are going to make bad investments. The sooner you understand it, the better you will become. Don’t take it from us, but read what the world’s greatest investor, Warren Buffet, had to say in his recent letter to Berkshire Hathaway shareholders.
Buffet, who is celebrating his 50th anniversary in charge of Berkshire Hathaway, outlined his history in the company, celebrating not only the successes, but also acknowledging the bad investments the company took.
He explicitly mentions his decision to hold on to Tesco shares. Buffet acknowledged the mistake and pointed out, “An attentive investor, I’m embarrassed to report, would have sold Tesco shares earlier”. Later on in the letter, Buffet points out an obvious investment lesson: “Not everything works out as planned”.
This sentiment is reflected by another great investor of our times, George Soros. He has said that, “you have got to make decisions even though you know you may be wrong, You can’t avoid being wrong, but by being aware of the uncertainties, you’re more likely to correct your mistakes than the traditional investor.
Be aware of the risks and know that you will eventually make mistakes. Don’t let them get to you, but focus on understanding what happened and improve your strategy – don’t brush your mistakes under the carpet.
Investing is a field that takes both guts and passion. The industry can be quite a rough place to crack down and you need determination to find your way. There haven’t unfortunately been as many women involved in the industry as we’d like to see, but luckily, the situation is finally changing.
GGV Capital’s Jenny Lee is one of the women paving the way for female investors and she believes passion divides great investors from the rest – whether you are a man or a woman.
In a recent Forbes interview, Lee said passion for understanding the industry is crucial in the field of investing. “It’s very obvious when you perform well – or when you’re not,” she said and continued by saying, “No one is going to be nice to you because of your age, or where you come from or your gender.” To make it and to become successful, you need to know what you want and you need to be willing to find the route to your destination.
Passion is what you’ll need to survive in the investment world. As the successful investor Carl Icahn once said, “You learn in this business: If you want a friend, get a dog”.
‘Build Enough Expertise’
Steve Schwarzman is undoubtedly one of private equity industry’s most successful investors. He co-founded his own firm, the Blackstone Group, in 1985 at the age of 37. The company currently has well over $290 billion worth of assets under management.
Schwarzman is a strong believer in building expertise before making it on your own. Although entrepreneurialism is a big part of investing, the private equity guru doesn’t think starting your own business should be the first thing on your mind as a young investor.
At a recent Annual Venture Capital and Private Equity Conference, Schwarzman told students from the prestigious Harvard Business School that investors can ruin careers by setting up their own business before they’ve gained expertise in the field.
According to Business Insider UK, he said he tells young people dreaming of launching their own start-ups to think twice. “They’re not old enough yet, they can’t raise enough money yet, they don’t have enough credibility,” he said. He himself waited until he had gained the expertise and understanding of the field before he went about it alone.
‘Invest with Your Values in Mind’
The investing industry has been going through a period of intense debate in recent years. The financial crash in 2008 and the growing problem of inequality have led investors to think about issues of sustainability and ethics. A growing number of investors now implement environmental, social and governance factors – the ESG factors – as part of their investment strategy.
Many successful investors are in favour of investing in assets that align with the investor’s own personal values and beliefs. Joseph Keefe, the president and CEO of Pax World Management, is in favour of stronger focus on sustainable or ethical investing. In an interview, he said, “Investing in a way that’s more focused on producing positive social and environmental outcomes, can also be a smarter investment strategy”.
The benefits of using ESG factors as part of your investment strategy can help you focus more on the quality of the investment. You’ll more likely invest with a more long-term approach in mind, which is something many great investors believe is the key to success, especially in a volatile market.
Keefe also makes an important point about values and sustainable investing when he says that sustainability isn’t just about the environment. Whether your values are aimed towards improving the environment, breaking barriers of gender inequality or animal welfare, it is worth considering them when you are making investment decisions.
Successful investors can teach you a great deal about managing your portfolio. Studying the investment philosophies of others doesn’t mean you need to replicate exactly what they have done, but learning from others can help you see what aspects might suit your personal philosophy and style and which are the routes you definitely need to avoid.