Conclusion: So There You Have It…

Legendary investors, brilliant business people—what do they have in common and what can you learn from them? The first thing to understand is that each of these individuals is an entrepreneur. Merriam-Webster defines entrepreneur as: “one who organizes, manages, and assumes the risks of a business or enterprise.”¹ I know what you may be thinking—the guy who started XYZ Software Company is an entrepreneur. Buying a few stocks and bonds every now and then is hardly comparable to owning a business; it’s just not the same. I maintain that this type of narrow thinking is the problem with the way numerous investors approach the market. Consider the parallels: Entrepreneurs and investors share a common goal which is to generate exponential return on an investment while limiting loss. For the former, it is in terms of a greater value to their enterprise; for investors it is the same exact goal except that their enterprise is their portfolio. And the same decision process should be in control: How much capital has to be put at risk to earn a reasonable return, and does the specific potential for loss make the investment worthwhile?

There are many different types of entrepreneurs, and creating a new website from your college dorm room is only one way to build a business. No one can deny that hedge fund managers are entrepreneurial, as are private wealth managers. In fact, so are individual investors except they have only themselves as clients. The point is that both the money manager and the software genius have each started a business that is based upon generating return from financial instruments. Investing in stocks is a business, and by extension, each time you invest in a stock, you should be assessing the fundamentals of each company whose shares you are considering in the same way a venture capital or private equity investor sizes up an opportunity.

Prior to starting a business, the entrepreneur will look at the competitive landscape, assessing the opportunity for differentiating his business model. The next decision is whether the risk of investment in the business justifies the potential reward, handicapping both outcomes. The stock investor should do the same. Is Coca-Cola better positioned than Pepsi, or is there enough room for both to meet their targets? Based upon the share price and valuation metrics, what is the potential downside, what is the upside? These are business decisions, strictly business decisions. And this is why Chuck Royce, for example, says that he buys companies, not stocks. So the common threads that run through each of the previous chapters include the following five principles to which investors should adhere:

1. A defined and clearly articulated investment strategy.

2. Introspection—the marriage of experience and bias with investment style.

3. The discipline never to stray from a defined strategy.

4. A strict risk discipline.

5. A detachment from emotion; clear and unemotional analysis.

So there you have it: Becoming a successful investor is not about following well-known or legendary investors into a trade for, as with life, the end does not always justify the means. Instead, focus on the strategy and process that the well-known investor’s reputation is based upon and adjust it to your own strengths. Develop a repeatable, reliable process and you dramatically increase your probability of success. This is the takeaway.

Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.