Let’s be clear: among entrepreneurs, those who can invest in the stock market are generally those who have succeeded in business. Among our clients, we have several successful entrepreneurs. In fact, one of our clients, an entrepreneur who has had great business success, recently discussed this subject with my colleague at our Quebec office. According to him, “The qualities that allowed me to succeed in business are not necessarily assets on the stock market.”
From the outset, I would say that entrepreneurs (women or men) who have succeeded in business often make excellent investors. At least that’s what I’ve noticed over the last 30 years or so. They often possess several characteristics and qualities that have served them well in business and are more than useful in the stock market: vision, knowledge of the business world, rationalism, optimism, patience, intuition, perseverance, etc. Wasn’t it Warren Buffett who said, “I am a better investor because I am a businessman and a better businessman because I am an investor”?
However, I have noticed on a few occasions that the qualities or characteristics that lead to commercial success can also become faults, or even serious obstacles on the stock market.
Sometimes qualities or habits useful in business have been taken too far in investing; as they say, “our qualities are our faults”.
I am thinking in particular of the habit that many entrepreneurs and business leaders have of making repeated decisions every day. Being in business means making serial decisions, from the most trivial to the most strategic. However, this habit is not ideal for long-term investors who are much better off making only a few decisions per year, at most. The stereotypical hyperactivity of entrepreneurs does not transfer to the world of investment, where, in my opinion, it is better to do nothing for the vast majority of the time (as long as you have built a well-diversified portfolio of quality companies).
Another quality that becomes a fault if it is excessive is confidence in one’s judgment, in one’s intuition. Many entrepreneurs have succeeded in business by relying on their judgment, which has led to prescient and profitable decisions. This capacity does not automatically transfer to the stock market. A business intuition forged by decades of observation and experience in a specific field of activity does not necessarily transfer to other industries or to the Stock Market. This overconfidence can lead to taking too much risk on the stock market or to the temptation to do “market timing” (entering and exiting the stock market at opportune times).
Another element that can be difficult for entrepreneurs to accept is relying on others – what I would call the ability to delegate. One may very well have mastered this ability in business, but it is often a different story for an entrepreneur to leave his investments entirely in the hands of the managers who run the companies in which he has invested. That’s not to mention the ability to delegate investment decisions to a portfolio manager!
Many entrepreneurs have succeeded thanks to their ambition and their almost inextinguishable desire to win. Taken to the extreme, this ambition borders on stubbornness, even obsession. In my opinion, you cannot act this way on the stock market, where modesty is essential to admit your mistakes and be ready to change your mind when the facts show that you were wrong.
Finally, many entrepreneurs try to control everything. They want to know everything about their company and its activities down to the smallest details. This habit serves them well in business (as long as a company is not too large), but it does not necessarily serve the investor well in the long term. Focusing on the few elements of a portfolio that are performing poorly can lead to a fixation on what is negative at the expense of everything that is going well. In investing, you have to know how to take a step back and evaluate an entire portfolio. An entrepreneur accustomed to controlling everything in business will probably have difficulty taking such a step back.
Are you or have you been an entrepreneur? Do you recognize yourself at all in some of these “bad qualities”?
