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Is an entrepreneur a bad investor?

von Dr. Nikolaus Braun

Being an entrepreneur means taking risks – often enormous ones. Entrepreneurs pour their time, energy, and significant money into their business ideas. Often, they are so passionate about their enterprise that they become blind to the risk. Isn't that great: People who create, build, and achieve success through their expertise, innovation, and dedication? People who can pivot 90 or 180 degrees, boldly respond to situations, spot market gaps, and explore new territories?

What makes you a successful entrepreneur makes you a bad investor

Here's the downside: when it comes to investing in capital markets, these very qualities that often make for successful entrepreneurs often also make them terrible investors. We fee-based advisors observe this phenomenon repeatedly. The typical highly dangerous error of entrepreneurs is assuming that what makes them successful in their business will translate to success in investing. This assumption is not just wrong. It's VERY WRONG.

In your business, you're in control - in the capital markets, you're just a passenger

Within their businesses, entrepreneurs are the captains of the ship. They identify opportunities and take risks, leveraging their expertise and informational edge. But in the capital market, entrepreneurs are mere bystanders. They have ZERO influence over the companies they invest in, and absolutely no informational advantage. That is, unless your name happens to be Warren Buffett.

Wealth comes from entrepreneurship, not stock speculation

Wealth is created by being an entrepreneur. This is where all the focus, risk-taking, and emotional investment should lie. The purpose of capital investment is simply to ensure that the wealth is preserved. Any money not consistently required for the business should be safeguarded, as if behind a firewall.

A sensible portfolio for entrepreneurs should look like this:

Boring: Eliminate all unnecessary risks. You don't need additional thrills; running your business is demanding enough.

Liquid: Whether it's a long-term investment or not, if something unexpected happens in your business, you must have quick access to your capital.

Diversified: While your business may focus on a niche, your investments need to be globally diversified. Betting on specific countries, industries, or companies should be off-limits.

Low Maintenance: The portfolio should require as little upkeep as possible: clear, transparent, and manageable. Time, perhaps your most valuable asset, should not be wasted on needless complexity, which only diminishes your quality of life.

It's your life's work: Let a fee-only adviser assist you

Real mastery involves recognizing what's within your control and what's not, what you can do on your own, and where you could benefit from the guidance of a fee-based advisor. This is especially true for those who are exceptionally successful and intelligent. They often understand that their business acumen doesn't necessarily translate to investment wisdom, and that relying on a professional can lead to a more secure financial future.

Best wishes,

Nikolaus Braun
Forty-Nine Fee-Only Advisors

PS: Please feel free to send any questions, criticism or comments to nachdenken@neunundvierzig.com.

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21/02/2020

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