Prudential Investment Managers

Prudential Investment Managers

October 2017

3 Things successful entrepreneurs can teach us about investing

There are many ways to build a thriving business, but all successful entrepreneurs share a few common habits. While some of these traits are obvious, others might take you by surprise. And they all have real-world investment relevance…

1. Successful entrepreneurs set SMART goals

It goes without saying that smart entrepreneurs set SMART goals.  SMART is an acronym which refers to goals that are Specific, Measurable, Agreed upon, Realistic and Time-based.  Smart entrepreneurs know that it can take a long time to build a business and even longer to make real money.  They have cash flow plans and sufficient liquidity to cover their basic overheads for a couple of years.  

What can we learn from this as investors? 

  • We should invest for specific goals and make sure that our investments are fit for purpose. Investing for a short-term need such as an emergency fund is very different to investing for retirement, which requires long-term growth and a higher risk asset allocation.
  • Measure your progress in wealth creation on an ongoing basis, but recognise that funds that are geared for long-term growth will fluctuate in the short term, reflecting financial market moves.
  • Be realistic about your retirement needs. Many people assume that their expenses will decline once they retire, but this won’t necessarily be the case. In fact, your expenses may well escalate once you finally have more time to travel and entertain. 
  • And regarding time, as always, never attempt to ‘time the market’, and always honour time in the market. We all know the story of the tortoise and the hare.

2. Successful entrepreneurs don’t bluff

Successful entrepreneurs don’t bluff, and they’re honest about their shortcomings.  They incorporate strategies for overcoming their personal vulnerabilities into their business strategy, and in so doing foster trust with clients, suppliers and – significantly – staff members. This creates a safe base from which to operate. 

A great example of entrepreneurial honesty is the recent admission by Dara Khosrowshahi, the new CEO of Uber, that he is fearful of his ability to succeed in one of the most challenging jobs around.  Despite it being regarded as one of the most successful market disruptors to date, the reality is that about 50% of the cost of every trip you take is subsidised by Uber itself, using some of the stockpiles of cash it has from its venture capital investors.  

What can we learn from this as investors?

  • Khosrowshahi’s example proves how important it is to be honest: not only with your investment adviser but even more importantly with yourself. No-one is invincible, and we all need to admit to our vulnerabilities and make backup plans. This means investing in emergency funds and making contributions to additional retirement funds over and above your primary pension fund, and not regarding your business as your only retirement plan.
  • From Uber’s accountability (or lack thereof) to capital investors, we learn to treat debt with respect and use it for superior returns along with a defined plan to pay it off.

3. Successful entrepreneurs don’t do business they don’t understand

Consistently great entrepreneurs never attempt to do business they don’t understand, even if they’re excellent at delegating and employ professionals with superior knowledge and their own great ideas.  Understanding a business includes understanding the ins and outs of the industry, and being aware of your capabilities, competitors, limitations and priorities. Highly successful entrepreneurs know that, at the end of the day, they are personally accountable for all their investment decisions. 

What can we learn from this as investors?

  • Never invest in something you don’t understand. If you’re in the dark about the details of an investment, you could unintentionally be adding too much or too little risk to your portfolio.
  • Never assume that your adviser has all his or her facts correct: you need to comprehend and own your own investment plan fully. It’s your money, after all, so the buck stops with you.

How to invest like an entrepreneur

The good thing is that we’re all entrepreneurs. We’re all creative, adaptive survivors and we all can make SMART investment decisions for long-term success. 

Investing in unit trusts is an easy way in which to use goal setting, honesty and limited knowledge to our advantage.  There’s a large variety which all cater to different (and specific) goals. There are those geared for shorter-term investing, including money market and bond unit trusts; and those geared to long-term growth including local and offshore equity unit trusts.  As ever, the age-old principle of time horizon-based investing and diversification applies.  

When it comes to honesty and lack of knowledge, unit trusts provide peace of mind as they allow investors to relying on highly-qualified and experienced portfolio managers who have in-depth insights into choosing the best assets for a specific portfolio.

Speak to a Financial Adviser or find out more about Prudential’s unit trust funds by contacting our Client Services Team on 0860 105 775 or at query@prudential.co.za for more information.

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