Reflections from the CEO…
The 8 Practices of the Most Successful Investors
Charles Donahue

During my decade as a financial advisor, I’ve had the opportunity to observe hundreds of investors. In that time, I’ve seen only a few achieve their wealth-building potential.

I’ve found that, in each and every case, these top investment “performers” consistently engage in specific, recognizable behaviors. I’m talking about behaviors others can apply to achieve similar success in their own investing endeavors.

These are not “habits.” They are consciously and carefully determined actions.
They are not “qualities,” because they are not innate or inborn – anyone can learn them.

They are principle-centered practices – conscious, disciplined approaches to optimizing the value of your money – and life, in general. 

They create and pursue S.M.A.R.T.E.R. goals.

You’ve heard of S.M.A.R.T. goals. And yes, the most successful investors set goals that are specific, measurable, attainable, realistic, and time-bounded.

“We will hold $3 million in liquid assets by January 1, 2014” is an example of a S.M.A.R.T. goal for a couple who can get there with the help of good advice, prudence and discipline. “We just want to make as much money as we can from this business while our product is hot” – well, that fuzzy goal doesn’t even come close to being S.M.A.R.T.

But the most successful investors go further. They set S.M.A.R.T.E.R. goals – goals that are also energizing and rewarding.

“Isn’t having $3 million in cash or cash-related assets energizing and rewarding enough for anyone?” you might ask.

Actually, no! Or, at least not energizing or rewarding enough to keep you motivated to stay the course when tough saving and purchasing decisions must be made.

The fact is, money itself is not really that important to most of us (with a few exceptions – people called “misers”). Money is only really valuable to us to the extent that it buys or provides us with things that are important to us… things we genuinely value.

Our financial goals should actually flow from our values and help us reach our life goals. Only then can they be energizing and rewarding enough to power us to succeed when temptations to deviate from our plan come our way.

So, a S.M.A.R.T. financial goal might look like this:
“I will accumulate $500,000 in liquid assets by June 1, 2015.”

While a S.M.A.R.T.E.R. financial goal might look like this:
“I will accumulate $500,000 in liquid assets by June 1, 2015, so that I will have the financial base I need to open my own practice.”

Again and again, I’ve seen investors achieve their dreams when they put this simple principle to work – even if they weren’t familiar with this acronym for successful investment goals.

They measure and track their progress.

Of course, it goes without saying that investors who are savvy enough to create S.M.A.R.T.E.R. goals write those goals down.  It makes sense, too, that they refer to them from time to time. This helps them keep those goals in the forefront of their mind, so they can stay focused and motivated.

But the most successful investors understand that, without (1) monitoring and (2) accountability, it’s easy to overlook problems that need to be addressed. It’s even easier to miss opportunities for enhanced returns.

That’s why they create checkpoints along the way – scheduled times to review where they’ve been, where they are now, and where they’re headed. Then, they can make the course adjustments they need to make to achieve their financial goals.

Some very wealthy investors meet regularly with specialists they employ full-time to manage their money (one or more investment analysts, a tax specialist, an attorney, etc.). They pay a hefty sum for the time and talent of each such high-level employee, of course.

Most investors take a “DIY” (“Do-It-Yourself”) approach – but this strategy carries with it significant risks… and we’ve all seen the fall-out in lost opportunities, compromised returns, and even financial devastation.

The most effective strategy for investors with several hundred thousand to several million in liquid assets is obtaining expert, unbiased advice from specialists in every critical area of financial health.

Of course, this option seems out of reach – far too costly for anyone but the super-wealthy. In fact, it’s not. (The Synchronized Investments model provides our clients with exactly such expert advice, in an environment free of conflicts of interest.) 

They build and maintain the right relationships.

 “How can you soar like an eagle when you’re hanging out with a bunch of turkeys?” My dad asked me this once, when he became worried I was running with the wrong crowd. Well, it turns out that this principle is not only true when it comes to personal and career success; it applies to investing success – and in a big way.

We become like those with whom we spend time. Our thoughts, feelings and mindsets are continually shaped and re-shaped by our interactions with the people who surround us. In fact, every human who provides “input” into our lives influences our decision making processes.

(This includes our friends and family, the writers we read, the experts and pundits we hear on the radio or watch on television, and even the neighbors we talk with during our evening walk).

It’s no surprise then, to learn that the most successful investors are highly-selective in the friendships they develop, the experts they consult, and the people they trust – in their personal and professional lives.

So, when it comes to investing decisions and strategies, these “super investors” tend to follow the same formula for success.

They build and work to maintain strong relationships with professionals who possess: (1) strong character and ethics; (2) exceptional expertise; and (3) a strong sense of loyalty and commitment to their clients.

They do what my dad wanted me to do: they soar with the eagles. 

They know the difference between busyness and progress.

The most successful investors know the difference between getting busy and getting things done. It’s called “productivity.”

They aren’t interested in being busy.
They’re interested in making progress.

A few decades ago, a New York real estate mogul left his son a building worth dozens of millions of dollars. That young man sold that building for seed money to fund his own ventures and turned it into a fortune estimated in the hundreds of millions today.

Of course, his work consumed much of his youth, and there were business fatalities along the way – projects that went bankrupt and left stakeholders recovering from losses – and (in some cases) employees and vendors unpaid.

Today, the building he sold is worth more than two billion dollars, even as it has generated millions in rental revenue for the owners in the intervening years.

These owners have spent those years enjoying life and collecting rent – while ensuring managers were in place who would maintain their property with good sense and integrity.

Yes, this young man “made” millions being busy, and he’s become famous for his entrepreneurship. But he could have ended up a billionaire and left much less destruction in his wake if he’d just remained a “landlord.”

A few years later, another young man in the same city received a similar inheritance.

Unlike the first young man, he let his father’s capable team continue to run the family business. He then focused his efforts on his true vocation: public service. He’s led a happy life doing what matters most to him – and his wealth has continued to grow while he has fulfilled his calling to help people.

The most successful investors are willing to let go of the temptation to get busy.

Instead, they focus on making progress.

They master stress and anxiety.

The most successful investors accept setbacks and failures as inevitable on the road to success. So, they don’t become over-anxious when the market takes a downturn or a stock takes a dive.

They understand that perfect financial management is a myth – that they will make mistakes and bad calls (even when they’ve done their homework). They trust that their prudent practices will carry them through, giving them enough “wins” to more than counter-balance the losses.

They don’t sell in a panic, and they don’t buy in fear.

They’re able to master their stress (short-term uneasiness) and anxiety (longer-term, more serious worry and fear) about their investments and their wealth.

They can do this because they know that their lives and purpose can’t be defined by their net worth.

Warren Buffett is an excellent example of this principle – one among many, actually. The world’s most successful investor, he considers investing something he does, not something he is – he refers to it as a “game.” It’s a game that engages and energizes him, but a game, nonetheless. His family, friends and causes come first in his life, as they always have.

He lives a balanced life, and that gives him the foundation he needs to succeed.

There are some advisors who would tell you that his massive success in the context of this detached approach is either sheer good fortune, proof of his exceptional (one-of-a-kind) investing intellect, or some combination of the two. And there’s no doubt that both good fortune and brilliance have had an impact on his success.

But I would argue (as he does) that his ability to lose money without losing sleep has enabled him to ride out numerous market storms and reach the highest pinnacle of investing success.

After all, in the end, it’s only money.

And who doesn’t have at least one friend without a dime who’s about as happy as a guy can get? (I have several!)

The most successful investors master stress and anxiety – by remembering: “It’s only money.”

They focus on SMALL, continuous improvements.

My former employer Ken Fisher took a concept Ford Motor Company made famous and applied it to building a very successful investment firm (one of the largest on the west coast).

He focused on making small, continuous improvements to his investment strategies and his business operations – rather than on looking for “lightning bolt” stocks or jumping on the latest investing bandwagon.

Now, his net worth is estimated at 2.5 billion… oh, and as we all know, the strategy worked out pretty well for Ford Motor Company, as well!

For Ken, success isn’t about reckless risks, amazing breakthroughs or startling innovations.

Instead, success is about tweaking what is working to make it work slightly better, stepping back to observe, evaluate and plan the next small improvement… and then repeating the process again… and again… and again…

And that’s how he leaves the high rollers, the gamblers, in his wake.

The most successful investors aren’t those who take the risks no one else will take, score big and end up rich beyond their wildest dreams. (Those investors almost always end up losing it all when their next gamble fails.)

The most successful investors are those who move forward, balancing risk and reward, building their wealth incrementally, over time.

They do it the Ford and Ken Fisher way: small, continuous improvements. 

They take moderate risks to move forward.

Sadly, most people with the resources and ability to become highly-successful investors never reach their potential because they are so: (1) afraid to fail and (2) addicted to always making the “right” decision that they avoid taking the moderate risks such success requires.

In some instances, they spend a great deal of time gathering information on every important investment decision.

They weigh their options and imagine numerous potential scenarios (“What Ifs!”). Then, by the time they’re ready to act, an entirely new set of investment conditions has arisen. The game changed while they were memorizing the rulebook!

The reality is, trying to absorb and analyze all of the available information is not only a powerful, sidetracking temptation for almost any prudent person. It’s actually impossible.

By the time a lay person can come to a good decision, it’s no longer a good decision (in the rapidly-changing investment landscape).

Even the smartest, most analytical lay people can’t develop the expertise they need to optimize their financial returns. That kind of success is only possible when decisions are guided by the in-depth knowledge and savvy that come with years of professional experience.

So, that brings us to the 8th practice of the most successful investors…

They delegate and collaborate.

Successful investors run their money like a business.

They find people who specialize in synthesizing the knowledge they need to succeed. They listen to these experts and make principled decisions. Then, they commit to their course of action and execute it with confidence. After that, they monitor the situation, staying aware of the progress they’re making toward their goals and making course corrections as needed.

They are great delegators.

But the most successful investors go further. They collaborate.

When you delegate, you decide what must be done and assign it to someone with the tools and ability to do it. When you collaborate, you work with someone else (or a group of other people) to decide what must be done in the first place. As long as you have chosen the right people with whom to collaborate, you’ll end up with a much more satisfying final result.

Let me give you an example.

Client A wants to invest most of a generous bonus he received from his employer. He calls an investment advisor he knows he can trust – an advisor whose statistics and reputation are excellent.

Checking in from time to time, Client A sees that he is consistently realizing good-to-excellent earnings from his investment – earnings that outpace those he probably would have earned if he’d just invested the bonus in his firm’s mutual fund – and with less volatility.

Client A is a great delegator. Over the course of his financial life, he will be a more successful investor than most, because of that very important skill.

Like Client A, Client B wants to invest most of a generous bonus he received from his employer.

Two years ago, he began working with a comprehensive financial management team. Since then, he has come to understand that it’s not the return on any one investment (or group of investments) that counts.

It’s how those returns might relate to every other aspect of his financial life that matters.

Looking at his entire financial picture, Client B’s team discovers that he can best maximize real returns on his bonus by taking advantage of a tax law allowing him to transfer some of the money to each of his adult children (tax-free) with the stipulation that the money will be applied to their mortgages. They counsel him to invest the rest of the bonus in his retirement savings vehicle.

This comprehensive financial management enables Client B to remain in a lower tax bracket, while providing a boost in upward mobility for his children and augmenting his retirement savings (both of which align with deeply-held financial values).

Client B comes out ahead of Client A in both tangible and intangible ways.

He is a great collaborator.

And well on his way to becoming a highly-successful investor!

 In Conclusion…

While the years may add a practice or two to this list, I’m confident they won’t take any of them away.

The good news is, each and every one of us can strengthen our mastery of each of these practices just by… well, practicing them!

I wish you the best of luck, as you grow in your own skills as an investor…

Carpe Diem!

Charles Donahue is a financial services veteran of 20 years, with the last decade spent in investment strategy and comprehensive financial advising. He is the founder/CEO of Synchronized Investments, Inc., serving clients with several hundred thousand to several million in liquid assets. Visit SI on the web: www.synchronizedinvestments.com.



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