Whether you’re a passive investor, a co-pilot or a pilot, there are three key principles that universally apply to all investors, and which you should take into consideration before choosing to invest:
What are your objectives? • What is your time horizon? • What is your risk tolerance?
Understanding your objectives
“Entrepreneurs in particular are focused on growing their own businesses, and they generally know that they can get the best return on their investment in their own companies,” says Warren Ingram, investment expert and founder of Galileo Capital.
“For example, if your company is experiencing 40% year-on-year growth, that’s a much higher return than you’d make investing your money elsewhere. And of course you’re putting all your cash back into the business because you need it for growth and cash flow purposes.”
On the other hand, this also means that all your eggs are literally in one basket. Having some money in outside investments provides a safety net.
“Whether you need a safety net or not often relates to your time frame,” says Ingram. “Objectives and time horizons influence each other.”
The time horizon factor
A 30-year-old entrepreneur whose business is growing and generating cash is in a very different position to a 55-year-old entrepreneur.
“Younger entrepreneurs have 20 or 30 years before they need access to the funds they’ve invested and grown in their businesses,” explains Ingram.
“They can afford to wait for the higher returns. Older entrepreneurs on the other hand might be looking to exit the company within a few years. Your time horizon should be aligned to your objective. Keeping your cash in your business will give you higher returns (provided the business continues to grow), but the investment takes time. If you need to see returns sooner, it might make more sense to invest elsewhere.”
Tolerance for risk is an incredibly personal choice.
“Many entrepreneurs like to be in control of their money. If it’s in their business, they have more control over it than if it’s invested in the stock market, for example,” says Ingram.
“As the business grows and they choose to diversify however, they might start investing in the market. The problem comes when the market dips. A classic case is an entrepreneur who sees the market dip, and immediately pulls their money out and puts it back into the business. All they’ve done is lose money.
“Investing is about patience. Markets dip, and then they grow. You need long-term objectives and patience. We often find that entrepreneurs look at their business, and compare their 40% growth to the market’s 20% growth. They’ll choose their business every time. What you need to remember is that nothing gives you 20% year after year.
“Early business growth is usually enormous — your return on investment is high, and your company needs cash to grow. It doesn’t make sense to put your money anywhere else. But once that initial large growth is over and you have surplus cash to invest, be patient with that investment. Don’t have quick, gut reactions when the market turns — it will come back.”
Related: Invent the Wheel or Invest in It?
The value of a plan
Ingram believes that having a plan in place is the best way to ensure you’re investing your money wisely, whether that’s in your business or elsewhere.
“We’re an entrepreneurial company. In our early years we also only invested in ourselves; and each time we launch a new business, that’s a brand new investment again. We understand how entrepreneurs think because we think in the same way. This means we know there’s no point in trying to convince an entrepreneur to not invest in themselves when their returns are higher than the market.
“But, we will always recommend having a plan. Set objectives for yourself. Plan to invest all surplus cash into your business for the next five years, and thereafter to diversify and invest 50% into the market, or buy property. You generally need 1 000 days (or three years) for any investment to see stable growth, so while your goals are variable, have patience.”
“We categorise pilots as investors who want to be able to touch, see, feel and control their investments. They might not have all their money in their businesses, but they’re not just handing it over to a broker either.
“We would recommend direct shares such as ETFs (exchange traded funds) as they’re commodity based, as well as investing in physical property, such as commercial buildings and houses that can generate rent.”
Next, Ingram recommends going back to the objectives. “Does the investment need to generate income or not? If it does, it makes sense to not put every cent into shares, but to invest in property as well. You then need to weight up all the risks associated with each investment.
“For example, we often see an investor buy the building that their offices are housed in. This does well, and so they decide to purchase a second property. However, now you’re not your own tenant. What happens when your tenants can’t pay? All your money is now a concentrated risk in one asset. Yes, you can see it, touch it and control it, but it’s still a risk.
“Instead, we advise spreading that risk out. Purchase smaller properties across industrial, retail and residential sectors, or buy shares in a listed property company or property ETFs. That way, for one trading cost you’re spreading your risk across multiple properties.”
If you believe you’re a pilot and you want to be in control of your investments, Ingram recommends you start with a small percentage of your funds and play with them. “Learn to invest by doing,” he says.
“You’ll either be successful or each investment decision will bomb. Rather find out which before you invest everything.”
“You also need to be honest with yourself and pay attention to the market. If you lose 10% and the market loses 30%, you’re doing well. On the other hand, if the market does 20% and you only do 5%, there’s a problem. You can’t invest in a bubble. You need to pay attention to what’s happening around you.”
One final piece of advice: Just because you’ve successfully started and run a business does not mean you’re necessarily a good investor. “The two don’t correlate,” warns Ingram. “So start slow.”
Related: Insider Insights from Investors
Co-pilots typically want to manage their own investments, but they want to do so to a structured plan.
“We find that many investors come to us for advice and help with putting an investment plan together, but they still want to manage their own portfolios. They want to know the obvious things to avoid, and be given some broad advice,” says Ingram.
“Then there are investors who invest a percentage of their funds with us, and keep a percentage to play with themselves. They’re comfortable knowing they have a safety net, but also some control over their personal investments.”
According to Ingram, whether an investor is a pilot or co-pilot isn’t always linked to financial acumen.
“Some people will migrate between the three groups over the course of their lifetime, and we often find that financially sophisticated entrepreneurs who don’t have the expertise or experience in investing will actually be co-pilots or even passive investors. It’s really down to what you feel comfortable with in terms of how you structure your investments.”
The passive investor
If you’re going to be a passive investor who relies on an advisor, there are a few things you need to take into consideration.
First, understand the costs involved. “If you make use of an advisor, they must disclose their costs,” advises Ingram.
“Anything more than 2,5% a year is expensive. The closer you get to 1%, the better your deal. Always ask an advisor how much they charge.”
Second, understand the efficiency of your various options. “Do you want to invest in ETFs, unit trusts, a range of shares or a managed share portfolio that you can track? Entrepreneurs don’t tend to like retirement annuities (RAs) because they can’t access them, and they tend to want liquidity in case they need to access cash. Always consider what you want from your investment before you make any decisions.”
Ingram also advises you to take the time to understand what you’re investing in. “How are shares performing versus unit trusts, for example,” he says.
“How are either doing within context? You need to look at the investment over five to ten years, and then compare it to the market. If a particular fund or share is matching the market, then it’s reasonably efficient.
“ETFs will always be efficient because you’re essentially buying the most efficient funds in the market, and the JSE, or any traded environment, is regulated, and therefore a safer investment.
“Also be wary of investments that are too good to be true, with extremely high promised returns. Currently, the best return you can expect is 7,5% over inflation. That’s the norm. Investments that are much higher than that are probably too good to be true.”
Ingram also advises passive investors to stay away from complex investments. “You should understand your investment within a 15 to 30 minute conversation. If you can’t, walk away. It’s too complex, and likely to be a pyramid scheme. Always take the time to ask questions and make sure you understand what you’re investing your money in.”
Getting your will in order
Most of us don’t like thinking about the fact that we’re not infallible, but the reality is that we aren’t and we should have proper plans in place should something unforeseen happen.
“As the year begins, the first thing you should be thinking about is your succession plan,” advises Warren Ingram.
“You don’t necessarily need a trust, but at the very least you should take stock once a year: What’s changed? How does this affect your family and business? How does it affect your will?”
According to Ingram, the beginning of the year is a great time to evaluate a few things:
- Are your spouse and children looked after in the event of your death?
- What happens to your business?
- How will it get sold to the right buyer, and at what value?
- Is there a buy/sell agreement in place?
- How is the business valuation done, and has anything changed in the last year that will affect this evaluation?
“This might not be something we enjoy focusing on, but it’s essential,” says Ingram. “You’ve built a business to take care of your future and that of your family, so make sure your will and succession plan are in place.”
(Infographic) The 10 Things You Should Cover In Every Investment Pitch
If you want to wow potential investors, you need to cover your bases.
If you’ve ever watched Entrepreneur’s original series, Elevator Pitch, then you’ve probably seen smart founders make dumb mistakes while pitching their ideas to potential investors. They might flub an answer or get tongue-tied, or they might just be a little boring. Other times, you might notice that something seemed off about a pitch, but you can’t quite put your finger on why.
Investors are gambling every time they put money into a new project or idea. Your job when pitching is to prove to them that you’re worth the risk. That means you’ll need to not only show them the possible upside of what they have to gain, but also be clear about what they could possibly expect to lose and their odds. In other words, you need to give them a holistic view of what you do, not just the one good idea.
You might have pitched an investor yourself and thought you crushed it, only to hear that the investor isn’t interested. If that’s the case, there’s a chance the pitch was missing one of 10 essential elements.
This infographic by Buffalo 7 breaks down 10 slides you should have in your next investment pitch deck. If you’re not presenting formally, though, you can still keep track of these aspects in your head and make sure you cover each one. They include:
- The vision, where you concisely explain your idea.
- The problem. Why is your vision necessary or helpful?
- The opportunity. What is the market size, and how can you position yourself to earn a share of it?
This is just the start, though. Check out the infographic below to see the rest of the slides you need when pitching investors.
This article was originally posted here on Entrepreneur.com.
‘Shark Tank’ Investors Reveal Top 5 Tips To Make Your Business Famous
Is your business worthy of fame? If so, pay attention to what the Sharks have to say …
Shark Tank enters its tenth season as popular as ever. Over the past decade, millions of people have watched fascinated as entrepreneurs pitched their business ideas and startups in the hopes of winning an investment and support from self-made millionaires and billionaires.
The multi-Emmy® Award-winning reality-based show has had a tremendous impact on the business world and has been a major influence on the increased popularity of becoming an entrepreneur. Over the years, the show has evolved into one of the world’s top platforms to launch a business and recently reached an astonishing $100 million in deals offered in the Tank.
I was recently invited to attend a private event hosted on the set of Shark Tank to celebrate their 10th season and met with all the Sharks and most of the guest Sharks for the current season. This year’s guest list includes luminaries:
- Charles Barkley, Hall of Fame NBA star and TV analyst
- Alex Rodriguez, legendary baseball player and businessman
- Rohan Oza, an iconic brand builder and marketing expert
- Sara Blakely, founder and owner of SPANX brand
- Matt Higgins, the co-founder and CEO of RSE Ventures and vice chairman of the Miami Dolphins
- Bethenny Frankel, TV celebrity, author, and founder of Skinnygirl brand
- Jamie Siminoff, the CEO of RING, who rejected an investment offer in season 5, but went on to sell his company to Amazon for a whopping $1 billion.
My better half was also invited, and we arrived promptly on time at Studio 24 inside of Sony Pictures Studios in Culver City, CA. We were greeted by the cordial staff who informed us that the Sharks were still filming the last takes of the day. After several minutes, we were invited to chat with the Sharks on the main floor where nervous entrepreneurs excitedly pitch their companies to the investors under the bright lights of the studio set.
I was curious to know what excited the Sharks the most about their tenth season and what they believed to be the best advice for an entrepreneur to help make their business famous.
1. Create an ingenious product
When asked, Lori Greiner said, “It’s a mix, right? Of smart marketing and ingenious product. For example, Scrub Daddy was a technology. So, taking that one sponge, which was revolutionary, changed the whole sponge arena. We now have, to date, 20 different SKUs, and we have 30,000 new retail locations and 170 million in sales. That’s what takes it from one idea to a global brand.”
Of course, skillfully promoting your product on a platform like QVC is another excellent way to make your business famous. The day after the Scrub Daddy episode aired, Greiner helped CEO Aaron Krause sell their entire inventory of 42,000 sponges in less than seven minutes on QVC.
2. Leverage social media marketing
During my chat with Bethenny Frankel, she stressed, “Social networking is so important. Also being a little bit disruptive now … and you have to be creative. You have to be creative. The President was the most disruptive candidate that there’s probably ever been in history. He got people’s attention, and young entrepreneurs need to get people’s attention in some way. So be a little disruptive.”
Matt Higgins responded, “I’d say that you have to understand social and digital marketing. You can’t survive unless you understand Instagram, Snapchat or all the tools out there. You have to be contemporary.”
Barbara Corcoran claimed, “Every one of us successful entrepreneurs, for the last two years, were phenomenal at social media. It’s true. No exceptions.”
No smart entrepreneur will deny the power of social media when it comes to making your company famous. With more than 2 billion people worldwide using some form of social media, any business can put their business in front of a large audience, especially if they can create content that goes viral.
3. Build a community
Daymond John stressed the value of building a community. “You’ve got to build a community,” stated John. “Nobody needs to buy anything new in this world. They only buy it because there’s some form of community and/or need that you are supplying for them.”
John speaks from experience. He built a successful clothing empire by creating a vast community of his own via his clothing brand FUBU. John wisely invested in celebrity endorsements, making him an early pioneer of modern influencer marketing.
If you lack the resources to build your own community from scratch, you can leverage the power of others. Partnering with influencers who have cultivated their own communities allows you to introduce your product or service to larger audiences. In fact, some consider Shark Tank to be the world’s largest business influencer platform.
4. Devise a publicity hook to win earned media coverage
Barbara Corcoran also said, “I’d say you need a publicity hook. Some hook, angle or gimmick that grabs the attention unfairly from your competitors.”
Remember, Shark Tank is a unique combination of reality television, business acumen, and entertainment. Doing something unique, different, or disruptive can get you significant media attention and abundant free publicity… especially if you’re able to leverage that publicity and captivate the show’s producers, who decide your fate as to whether you’ll appear on the show.
Regardless if you want to appear on Shark Tank or not, being featured in the media is a way to differentiate your business from the competition and reach a broader audience. Be creative and willing to take educated risks when it comes to getting noticed by the media. You should always be actively building relationships with media representatives and ask for their insights when formulating your plan.
5. Know your strengths and stay focused
When I asked for billionaire Mark Cuban’s insights, he thoughtfully replied, “Knowing your unique advantages, play to that, and your strengths. And focus. You know, what happens is very often people start with an idea, get a little bit of traction, then it gets hard. And when it gets hard, they start looking for other things to do as opposed to playing to their strengths. Because businesses aren’t supposed to be easy. You know, if they were easy everybody would already be rich, and we’d all be sitting on a beach somewhere. And so, when it gets tough, you gotta dig in and work hard. I’d say the final thing I’d add is that sales cures all. There’s never been a business that succeeded without sales. So, if you focus on selling … if you’re able to sell … and that’s something that is one of your core competencies, then you’ll be okay.”
These are wise words from one of the world’s few billionaires.
This article was originally posted here on Entrepreneur.com.
The Best Way To Get Your Teenager To Start Investing Right Now
Jeff Rose advises a young fan on where to start his investment journey.
In this video, Entrepreneur Network partner Jeff Rose talks about receiving a letter from a young investor, who is looking for advice on how to begin investing.
Rose talks about the act of actually doing the investing versus worrying about reading books or asking others about the process. Taking action gets the most results, since you are able to make mistakes and start the learning process. Taking action also leads to more experience, which is to say if you begin investing as a teen, you will be much more savvy about investing as a twenty-something.
In answering this young investor’s concern about investment direction – the fan hopes to balance short-term gain and long-term gain, as well as to establish some padding for a future business – Rose turns him in one specific direction: A Roth IRA. When he was younger, Rose didn’t even know what a stock was until far into his college years; during this time, he discovered the Roth IRA and learned of its compounding power, as well as the accessibility of an initial investment.
As another route, Rose also mentions starting a business. This path, Rose explains, will help you achieve the most return on investment.
Click on the video to hear more tips for a younger investor.
This article was originally posted here on Entrepreneur.com.