Being successful as an entrepreneur does not mean that you are also skilled at investing the money generated in the company. Neither in the management of surplus cash within the company itself, nor in the management of money already extracted outside the company. In fact, from our knowledge of many entrepreneurial families, we can assure you that usually the most brilliant entrepreneurs are terrible investors.
They almost always recklessly leave the task of investing the surplus money in the hands of the banks, a crass mistake that always ends badly. And ton the face of mistakes made and disappointments suffered when making «financial» investments outside the company, entrepreneurs often fold their sails and abuse the reinvestment of profits in the family business. Thus, paradoxically, the most brilliant entrepreneurs fall into the error of the old saying of putting all their eggs in one basket. Sometimes the «abuse» of wealth concentration in the company has a happy ending, as this systematic and compulsive reinvestment contributes to further growth of the business. But in most cases, a prudent diversification of family wealth into investments in other companies, listed or unlisted, and also in real estate, ensures greater wealth resilience. Diversification guarantees greater security in the face of potential crises that may affect the sector, the country, successors, etc., thus ensuring greater wealth growth for subsequent generations.
The problem is that entrepreneurs - with honourable exceptions - tend to consider monetary investments that are not reinvested in their own business as a type of investment that does not suit them, that they do not know about, and for which they need to rely on brainy bankers and specialists in the world of finance (sic). Entrepreneurs make a totally erroneous and lethal distinction between entrepreneurial business and financial investment.. They believe that the stock market, private equity and investment funds are different animals from the company, the family business that entrepreneurs know so well. And it is not their fault that they misinterpret reality, since it is the banks and financial media themselves who convince them on a daily basis that to invest in these financial assets «you have to know». They dizzy them with technical jargon, technical analysis, macro analysis, structured, trends, markets, commodities, currencies and a whole host of vocabulary and products that are actually totally alien to the world of business. Worst of all, the specialists and bankers themselves actually believe that financial investments are just that, a complex and random world outside of business.: «Now I am finally out of the stock market and into the real economy, a former banker confessed to us a few months ago and we told you about it in the article entitled «...".«It is not a quarter or a year. It's a lifetime of investing«. How can those who manage other people's money by betting on assets they consider to be far removed from the «real economy» be good advisors?
Despite the banking noise and technicalities that distort the investment world, Investing is and should be the same as starting and running a business., And it must be done with the same entrepreneurial mindset. As Warren Buffett often says, to succeed as an investor you don't need to be very smart, you just need to be rigorous, know how to analyse a balance sheet, and time will do the rest. Forget about structured, forex and technical analysis, which take us away from the real economy and throw us into the gates of mere speculative casinos. The trees of the markets and financial speculation do not allow us to see the forest of investment in companies. Investing in the markets should be done like any other business investment we make.. We must not lose sight of the fact that we must invest in good businesses at attractive prices. And that is the analysis we must carry out before buying any share, listed or unlisted (private equity). This is the only way, dispensing with the noise of trends, timings and short-termism, In this way, we will be able to create Value in our investments, in the same way that we manage to generate greater Value in our company every year. Anything else takes us further away from long-term Value creation, and dangerously close to roulette.
How important is the price of any product sold to us by the banker of the day, if the underlying is not a good deal bought at a good price? If it is not, we are simply gambling on a slot machine where we can only win temporarily. A mirage that will make us confuse gambling with investing even more, and that will make the fall even harder. On the other hand, if we have been lucky enough to find a good investment, i.e. a good deal at a good price, we should not care about its short-term price (unless it is clearly higher than the real value we have calculated for that investment, in which case we should sell it quickly and celebrate this stroke of luck in style).
Don't we do the same when it comes to our business? We care little about the daily (or quarterly or annual) valuation of our own company if it generates good profits and grows year after year.. Only those who do not know what they are investing in are interested in the short-term fluctuation of the share price. Because if with our good business mentality we know perfectly well that we have invested in a good business, its stock market price, below or close to its real current value, loses all interest. Reread the phrase in the photo at the top of this post.
Therefore, entrepreneurs would do well to change their mindset and start thinking about investing their cash surpluses and outside money in other businesses, diversifying appropriately. But always knowing and valuing as an entrepreneur the companies of which you are going to buy shares. Trying to participate in those companies always in the long term, as a good entrepreneur who owns several good businesses. Never as a financial gamble in markets whose mysteries can only be deciphered by brainy bankers and analysts (who allegedly «know», of course). That is not investing but gambling and paying juicy commissions all over the place. And in these gambles, good businessmen lose most of the money they make from their companies, end up getting screwed and reinvesting more than is prudent in their own business, as we said at the beginning.
At this point, the question on many employers' minds is the following: If my business takes up all my working time, where do I get the time, information and accounting knowledge to properly analyse other companies to invest in? At most, I could analyse, invest in one or two other companies that I know personally and follow closely. The universe is therefore limited to the personal environment, to a very small number of investments that would still concentrate a lot of risk, in terms of number, sector and geography. And this is where investment funds come in, where we will find the worst (the most abundant), but also the best analysts investing in hundreds of thousands of companies of all types and all over the world. But watch out! We should only select funds whose managers invest under the criterion of pursuing the generation of business value. However, this is not enough, because, as with entrepreneurs, there are some fund managers with this investment philosophy. brilliant, good, mediocre, bad, and bad for the court of law.. It goes without saying that we must select only the brightest. How? Well, fund/manager selection is an art and here entrepreneurs need someone to teach them how to analyse and select them correctly. And previously that someone needs to provide them with access to information on the best out there. You have to do a lot of digging and have access to be able to invest in funds from all over the world., The vast majority of what the banks are trying to sell would belong to the category of the bad guys and would be a matter for the courts. But we have already talked about the miseries of banking on many occasions and we will not add fuel to the fire.
It is an aberration that something as close to the business world as the purchase of shares in other companies (listed or unlisted on stock markets) has been so distorted by financial intermediaries that most entrepreneurs do not recognise it as a business investment. So let's get away from all that distorting noise and get back to the roots of business engagement through the best business analysts. Brilliant fund managers who have proven over decades that they know how to value and select the world's best businesses for their portfolios.
In short, the distinction between business and financial investment should not exist. Because if we lose sight of the fact that in the world of finance we must also invest in businesses, whether they are listed on the stock exchange or not, we will fall into the hands of the gambling addiction of the markets. If instead we manage to invest the surplus of our business in other businesses with the same mentality and business knowledge, we will move away from the banking casino, we will shield our fortune in the long term, and we will come closer to the best investors/entrepreneurs on the planet, read Buffett, Fisher, Templeton, etc. Because a brilliant entrepreneur must, by definition, also be a brilliant investor. All he needs is outside help to know how to find and select the best managers, and to have the rigour to completely ignore the rest of the financial intermediaries who belong to the world of betting and commission. Not the investment world.