Fix it Friday Ep. 1 - Particular Investment Challenges of Successful Entrepreneurs, Executives and Business People

FIXITFRI01

Voice Over: [: 00:00:00

At the end of this podcast, a copy of fusion's current written disclosure brochure, discussing our advisory services and fees is available upon request or www. fusionfamilywealth. com.

Welcome to the Crazy Wealthy Podcast with your host, Jonathan Blau. Whether you're just starting out or are an experienced investor, join Jonathan as he seeks to illuminate and demystify the complexities of making consistently rational financial decisions under conditions of uncertainty. He'll chat with professionals from the advice world, entrepreneurs, executives,

ello again, this is Jonathan [: 00:01:00

The term fix it is really just because we're identifying a systematic error that we're all by human nature prone to make, uh, how to identify it and how to fix it. Uh, so, so we thought, uh, What better thing to call the, uh, the short version of these podcasts, uh, Fix It Fridays. And they'll be coming out, our plan is, uh, every other Friday.

er Friday basis. And, uh, so [: 00:02:00

And, and, um, I've always said is we have a reflexive association between wealth and wisdom, particularly when it comes to. Money decisions in particular comes to investing. What I mean by that is we automatically assume that if somebody's successful in business, that that would translate because they're wealthy and successful, uh, and proven, so to speak in business, that, that, that the skills that led them to be successful in business in their mind and, and the outside world's mind should definitely lead them to be able to be successful investors.

re, uh, we tend to meet, uh, [: 00:03:00

More often than not, close to a hundred hands go up. By definition, only half the room could be above average. Uh, and that's how we think of ourselves. So when we're successful, we tend to get, uh, overconfident in our abilities. And so that overconfidence bias acts like a magnifying glass, meaning that, uh, human nature And the mistakes we make about decisions and money are pre programmed into all of us.

to just as much as everybody [: 00:04:00

But we're, we're, we're, we're magnifying them by, by, by an order of magnitude, uh, because of our overconfidence. So one of the first examples I'll give is, is, uh, entrepreneurs who are successful and executives who are successful are oftentimes running businesses that have multiple divisions and, uh, they, they tend to look.

Uh, often quarterly at the divisions and they'll say, gee, you know, these, these two divisions are doing poorly for the last two quarters. So maybe I'm going to jettison them. I'm going to sell them off, close them down. I'm going to take the resources that were supporting those, what I call failing divisions and put those resources into the divisions that are doing really well, knocking the lights out.

to do better than the other [: 00:05:00

But investors treat as long term, so they sell, uh, they sell off those, those companies thinking that the problem will get resolved and they sell at a discount. And then growth, which is the other style. Growth are companies that are selling at a premium to the average company because investors expect that the growth of their earnings will also be premium.

to the earnings of the average company. And so those two styles go in and out of favor, uh, at times, and again, magnitude's unpredictable. And so what happens is, when a, when an entrepreneur or an executive who's used to jettisoning, uh, underperforming, uh, divisions, and putting money into outperforming divisions, they tend to look at their portfolio, uh, diversification mechanics the same way.

s [: 00:06:00

So let me buy more of the emerging markets and let me sell some of the expensive. That's not what they do. What they do is they look at the sectors that are meant to diversify each other by performing. Differently than each other at different times, they tend to look at them at division. So let me get rid of the emerging markets because it's a bad division.

gies, AOL, et cetera, back in: 1999

So, so it's a big mistake that we make, uh, as entrepreneurs and executives who are successful and used to managing your portfolio, uh, the same way they might manage the business. The other thing that's a challenge for entrepreneurs and executives who are successful Is that they, um, they, they tend to, uh, particularly in the case of entrepreneurs need skills to build their companies and their wealth from entrepreneurship that are not just different than the skills needed to succeed as a long term investor.

it into, oftentimes, one big [: 00:08:00

And so, In order to succeed as an investor, you need to do the opposite. You need to not concentrate all of your energy and money into one, uh, companies or sector, but to spread it out and diversify. The goal with investing is not to find what's the best for you, highest returning business I can invest in and borrow maybe to invest in, but what is the, uh, what are the best returns I can find that I can likely stay with for multi decades because compounding.

h, in my experience, untrue, [: 00:09:00

The overconfidence that we develop because of our success as entrepreneurs and, and, uh, and executives, uh, leads to worse and more costly, uh, behaviors when it comes to money and uncertainty. The other thing I'll say is, um, when we're, and I'm an entrepreneur who's successful, fortunately, so I, I relate to it.

Uh, we tend not only to be overconfident, but we also tend to attribute much less, uh, uh, luck to our success. than skill. The causal relationship of skill is something that we often always look to, uh, to, to account for our successes. We only look to luck, um, when, when it, when we don't succeed, we look to blame an outside factor and that leads to, uh, not learning from our mistakes and so forth.

njoyed the first episode of, [: 00:10:00

com, uh, podcast section, uh, and also the episode will be available on all the major podcast, uh, channels, like, uh, uh, And, uh, Spotify, et cetera. Uh, and of course you can go to crazy, wealthy podcast. com, uh, as well. So thanks again for tuning in. Look forward to seeing you on next fix it Friday.

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