Entrepreneur YOU!

The best investment strategy for Entrepreneurs (and normal folks) to take in uncertain times.

Posted in E Essentials, Personal Journey by Robert Lindsay Thompson on February 26, 2011

Where is the best place to invest your dollars?

Life is wrought with uncertainties. There are a million investment strategies out there. Which one is right? No one can accurately predict what will happen in the future. I can assure you though; things WILL get better… or they won’t.

In 1988 the Wall Street Journal began a contest that was inspired by Burton Malkiel’s book A Random Walk Down Wall Street. In the book, the Princeton Professor theorized that “a blindfolded monkey throwing darts at a newspaper’s financial pages could select a portfolio that would do just as well as one carefully selected by experts.”

By 1998, the WSJ had run the contest 100 times, pitting Wall Street Experts against blindfolded WSJ employees randomly tossing darts at stock tables plastered against a wall. The results were interesting: The darts won 39% of the time! The pros losing almost 40% of the time to a bunch of darts certainly could be viewed as somewhat of an embarrassment for the pros. Additionally, the performance of the pros versus the Dow Jones Industrial Average was less impressive. The pros barely edged the DJIA by a margin of 51 to 49 contests. In other words, simply investing passively in the Dow, an investor would have beaten the picks of the pros in roughly half the contests (that is, without even considering transactions costs or taxes for taxable investors).

The book of Ecclesiastes states, “The fastest runner doesn’t always win the race, and the strongest warrior doesn’t always win the battle. The wise sometimes go hungry, and the skillful are not necessarily wealthy. And those who are educated don’t always lead successful lives. It is all decided by chance, by being in the right place at the right time.” In another version; “but time and chance happen to them all.” Bottom line is that we are NOT in control.

Notwithstanding, you can still develop a solid investment strategy. I believe, THE very best investment you can make is in yourself.

Investing in yourself is the best investment you can make

I’ve always co-sponsored my kids investment (matching their cash contribution) toward education, international travel, pursuing a particular passion or starting up a business. I think that education and personal development pay rich dividends… not only monetarily.

I disagree with the prevailing wisdom of using OPM (other peoples money). For one thing, most savvy investors aren’t going to give you money unless you have “skin in the game”. It takes a 110% commitment to launch a business. As the saying goes, “where you treasure (money) is, there will be your heart (passion) also”. That is not to say that you have to risk everything to start a business. But a half hearted (safe) approach won’t work either.

The “passive” investments I’ve made in times past- in real estate, in other peoples businesses or in the stock market have never turned out well. I’ve learned that the best use of “seed” capital is to plant them seeds myself. >To remain engaged in the process of cultivation and harvest, versus to turn over my seed to other “farmers”. Just like it’s not a good thing to permanently delegate parenting responsibilities. It’s not the best thing to give up the stewardship of your money to someone else either.

Therefore, my opinion is invest in yourself first; your education, your personal development, your own business, your own enduring passions. Invest in those you love. And, if you still have money to burn, pay off your debts. Liquidating high interest loans /credit cards is usually the superior investment strategy.

Advertisements

Comments Off on The best investment strategy for Entrepreneurs (and normal folks) to take in uncertain times.

%d bloggers like this: