WHAT MAKES AN EXCEPTIONAL INVESTOR

It’s the age-old question in the investment world. Truth to tell, no one has a really good answer. There is no true science to investing, and certainly not for Private Equity/VC investments. The ugly truth is that most professional investors aren’t very good at it; That’s one of the reasons so few of them outperform major indexes over any reasonable period of time. VCs, on average, are even worse. Most of their investments are dogs, and few ring up truly superior returns.

Well after 30 years in the money business, dealing with some of the most sophisticated and savvy super investors in the world, here are my 10 tips which I hope will broaden your minds further.

1. Correct conceptual understanding of investing.
There are plenty of investment theories around. Some are valid, others are nonsense. Your ability to choose a solid investment philosophy is critical. Whatever theory you choose, make sure you understand it inside out. As Warren Buffett keeps saying ” Never invest in a business you can’t understand”. So the first step of being an exceptional investor is to know your stuff like a “master”.

2. Rationality.
Wishful thinking and psychological biases don’t do well in investing. Neither does arrogance. Rational thinking, open-mindness and humbleness are musts. At the end of the day, patience and psychology is what differentiates the big boys from the rest of the pack… Never let your ego come in between. No one is bigger than the market. Ask George Soros.

3. Consistency.
Stay always consistent. Michael Moritz of Sequoia Capital was able to maintain both success and attention in the venture capital (VC) space because he invested in companies that for the most part, handled money on a consistent basis with tangible long term goals to handle even more money. Investments in companies such as Google, PayPal, ServiceNow, and Nimble Storage are all signs that Moritz not only understands technological trends, but he also understands which companies stand to profit from these new innovations…which brings us to my next tip.

4. Keen ability to vet people.
Exceptional investors have a very good intuition for great business people not just great technical people. At the end of the day, it all comes down to people. Look at all the greatest athletes who always find a way to win, no matter whether they are hurt or the amount of pressure they are under. The key is finding those clutch athletes or killer entrepreneurs before considering any serious investment.

5. Strong investigative skills.
Once again and as I keep saying all the time, business is “War”. If you cannot do the right due diligence you are dead in the water before you even start. Your ability to find key information efficiently is paramount to the success of your investment. An exceptional investor is someone who does not ask a lot of questions but the questions he/she asks are very pointed and frank. Most importantly, he/she listens first.

6. Psychology and business acumen.
Your deep understanding of how businesses operate and make money and your ability to stay calm in the middle of panics, bubbles and other emotional storms will in most cases determine where you stand in the grand scale of success… IQ is good; EQ is much more important.

7. Patience.
Do yourself a big favor. Stop listening to those Wall Street investment bankers or other hustler entrepreneurs who keep pushing product down your throat. Start developing the mentality of an owner, not a speculator. Most importantly start resisting the temptation to make money quickly. It is a fact that there are so many companies garnering buzz in the tech space today, but so few of them have a well thought out “business model”. Many times, these companies are often “pet projects” that evolved and received funding simply because the talent behind them looked attractive to users. Many investors are focused on quick buyouts or staying relevant by funding buzz rather than funding companies that provide people with sustainable services. Always remember… The ability to discipline yourself to delay gratification in the short term in order to enjoy greater rewards in the long term, is the indispensable prerequisite for success.

8. Good judgment of risk.
Start developing a solid judgment of business and investment risks and start practicing prudence. Funding hundreds of new apps and digital toys whose claims to fame are due to popularity rather than necessity is how you end up with new cycles of investment bubbles.

9. Hard work.
Nothing beats hard work. Willingness to do it right, every time and see the entire organizational chain, from start to finish and see the company’s exact position in the global ecosystem is the only way to go. Don’t wish it were easier. Wish you were better.

10. Passion for investing.
Exceptional investors love their craft – which is why they can carry themselves through the disappointments and hard work. They seek to learn something from every trade they do, and thus they are not afraid of losing a little bit of money. Even if they lose money the lessons that they learned from the investment experience will help them make more money back quicker and easier than before. Passion stays no matter what the outcome is. Besides, any investor who said he/she never lost anything is a liar.

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