Great Entrepreneurs Suck At Investing

by David Ning · 20 comments

Entrepreneurs sucks at investing

I really have a great appreciate for entrepreneurs. In fact, I work for one who’ve managed to built a 30 million dollar company from scratch in a short couple years with no funding. However, I was speaking with my boss the other day and I realized that many of the same traits that make entrepreneurs great actually keeps them from being a great investor. Let’s talk about these in more detail.

Optimism
Every entrepreneur is optimistic about the future. In a business environment, it is so important to think about the potential rewards because optimism is the only motivation tool at his/her disposal to weather the tough times.

An investor though should not be optimistic. The best investors are the ones that worry about the potential downside all the time. The number one objective of an investor should be to not lose money and the only way to do so is to assess the risk of the portfolio constantly.

Convicted in the Decision
In order to be successful, the entrepreneur has to be convicted in the decisions that are made. This is the only way to be able to lead other people to follow and execute his/her direction with confidence.

In an investing environment, being too convicted is going to hurt an investor. It’s good to make decisions, but if it doesn’t turn out the way we though it will, we shouldn’t convince ourselves that it was the right direction going forward.

Aggressive
Entrepreneurs are aggressive. There is no doubt that successful entrepreneurs made big bets at some point in their lives. Many entrepreneurs start off by leaving a good paying job and risking it all for something they truly believe in. Some fail, some succeed but they go with the mantra of “no guts, no glory”.

Never Give Up
Entrepreneurs never take no for an answer and they never give up. The only reason why my boss is successful is because he never gives up. There are business relationships that he saved because he never, ever gave up on winning the customer back. In a business world, this is one of the most admirable trait to have.

Investors better give up when things turn the other way. A famous quote related to this is “It’s not what you don’t know that hurts you the most, it’s the things you know for sure that turns out to be completely wrong that hurt you the most”. If an investment turns south, admit defeat and get out of it immediately.

Conclusion
I’m glad that there are many professionals that help these successful entrepreneurs handle their finances because it would otherwise distract them from doing what they do best – build their business.

I feel like I need to somehow separate investing and business before I can be successful in both. I’m a pretty good investor so far, so it will be interesting for me to see how I can become a successful business person also.

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{ read the comments below or add one }

  • Sadly, I agree. Index funds are wonderful for entrepreneurs and, if you’ve taken a keen assessment of your risk tolerance and still need some alpha-investing, set aside some money to invest in your own ventures! But be reasonable!

  • Chad says:

    I would argue that some of these characteristics are good with certain exceptions. You need to have optimism and conviction of decision to be successful. Being able to see what no one else sees can be very profitable. Aggressiveness also is not bad as long as it is more situational than full tilt all the time. However, being able to know when you’re wrong and making the decisions to correct those errors is probably the most important

  • I am a serial entrepreneur, and it is a curse and a fantastic life. We are high risk takers and do aggressive placements both of our time and money. If you snooze you loose! New mantra is however – Better to have 10% of 100% than zero of it all!

  • Having worked with entrepreneurs for years, I have to agree entrepreneurs are usually very persistent and optimistic. These two personality traits by themselves can cause havoc to one’s investment portfolio. However, good entrepreneurs know their weaknesses and develop a strategy to help overcome them.

  • Alex says:

    Perhaps entrepreneurs and investors do have more similarities. I feel the post makes some good points, but:

    – Regarding optimism: why should an investor not be optimistic? Fine, the market is not always going up, but as an investor I believe that when a decision is thought over and then made, and investor should be optimistic about his decision.

    – Convicted in the decision: also entrepreneurs make errors. Often, entrepreneurs will have to admit they are wrong… perhaps not to their personnel, but to themselves.

    – Aggressive: Yes, big entrepreneurs made big bets in their lives, but so did great investors. But then again, how do you define a ‘bet’. Even the biggest bet are calculated risk/reward decisions.

    – Never give up: Entrepreneurs indeed never give up their cause… but sometimes they have to admit that a certain approach or idea is not working, and they switch to something else. Investors will also not give up they portfolio or methodology, but they also have to admit from time to time that a certain investment is not doing well, or that their strategy is not working at this time, and they have to re-balance their portfolios.

    I think, entrepreneurs and investors are not all that different. Entrepreneurs invest in their own company, investors invest in other companies.

  • Jerry says:

    That is so true. My very good friend is extremely successful. A millionaire many times over and does not do well with his money. He needs to invest wisely as insurance for his future but I think he just thinks that he’ll always be able to make money. One misstep could lead to devastation so I hope he changes his ways.

  • Dave says:

    I’m an entrepreneur and this article nailed it. I stick with loser stocks way to long. I get hyped up and take excessive risk on little companies that have very small chances of success. On the other hand, I guided my own company through dark days by sticking with it and never giving up.

    I guess you need to do what I advise my clients, concentrate on the things you are good at and let experts handle the rest.

  • Eric says:

    I will respectfully disagree with your point that having conviction in an investing decision is a bad thing. I believe that this is not always the case. If I do a thorough analysis of the financial statements, study the annual reports, do the due diligence, value the company, and find that it is trading at a steep discount, then I believe that conviction can help. It is especially helpful to have conviction if the price fluctuates a lot or the market is going through a tumultuous period.

    However I do agree that too much confidence and optimism is a bad thing for novice investors who think that they know more than they do.

  • Ken Reid | Stocks Online Learning says:

    A lot of investors are “mature” entrepreneurs. They’ve made their money, now they are looking for ways to use it 😉

  • I have to disagree about the two being mutually exclusive, though you are right on the money that investing requires a completely different mindset. Many good investors that I know personally are always aggressive, but they are aggressive on both sides of the coin. Great thought provoking post.

  • jakewriter says:

    I believe you’re right though some entrepreneurs like Warren Buffet have done pretty well at investing….great tip for my bor…gota pass it on.

  • LiteDeals says:

    Insightful article. I have tried both and felt that these two are not very compatible but this article summarized the difference right to the point. Of course, the investor here is refering to “passive” investor while entrepreneurs are “major active” investor 🙂

  • Natasha says:

    Interesting reading, perhaps the prudence of an investor can still be applicable when working with the optimistic entreprenure. It can help take an enterprise in a different direction.
    I am your typical entreprenure (as you have described above), but I am now working with a very non-aggressive, reserved and prudent person. It has been an interesting experience as she has ideas and direction that I would not have.
    Surprisingly, this dynamic is working very well. I come up with ideas and impliment them, whereas she tends to maintain these business ideas and keeps them profitable and stable.

  • Great post but prefer if you insert the word ‘usually’ before ‘entrepreneur’ … I’m a pretty good Entrepreneur/Investor (2/3 : 1/3), but they don’t call me the Scared Millionaire for nothing:

  • lena the thinker says:

    The key to business success is to never give up and stay focus. Remember no one ever wins without risking.

  • TheWealthMatrixGuy says:

    Great post.

    As a serial entrepreneur and someone whose personal network is populated by these types of people, It made me laugh thinking about it.

    I guess that’s why I don’t trust the stock market and choose to “Self-direct” my IRA and tell others to do the same.

    Interesting.

  • After reading this there is no doubt that President Bush is an entrepreneur is there? LOL.

    Chuckle and move on, I’m not trying to hijack the comments thread ;o)

  • Very interesting take on how persistent aggressive optimism can be good traits for entrepreneurs and possibly hinder investors from making progress.

    Thanks for sharing the insight. 🙂

  • Mark @ TheLocoMono says:

    You present a good arguement. There are investors who can invest both ways, whether the market goes up or down.

    Entreprenuers have to struggle to stay up and keep going up. If they go down, do they profit? You certainly are making me look at VCs in a different way now.

  • Anthony says:

    wow.

    “Entrepreneurs are aggressive. There is no doubt that successful entrepreneurs made big bets at some point in their lives. Many entrepreneurs start off by leaving a good paying job and risking it all for something they truly believe in. Some fail, some succeed but they go with the mantra of “no guts, no glory”.”

    That was reassuring to read, I’m quitting my job in a month from now.

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