australianinvestor
Bronze Contributor
I originally posted this in the Speedway forum thinking it was here, and Kurtordy pointed out to me that this post should be available for newbies, so here it is!
What skills/abilities/resources/habits do you think should be in every investor's tool kit, and why?
In other words, if we thought of investing as a trade, what would the mandatory tools of a master tradesman/tradeswoman be?
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Mine, in a rather disorganised state, and written quickly without editing:
Personal skills
1. Knowing your own life purpose and why investing is vital to it
- This can be a massive motivator - you'll be motivated to be a very successful investor if you know WHY you are investing. Money for money's sake isn't the great motivator it's portrayed to be. On the other hand, the thing that drives you to LIVE will be a fantastic motivator.
2. Ability to see opportunities
- Opportunities are everywhere, but it takes a special mind to see ones which others can't. They are there, but at the same time, they aren't. They need to be seen to exist, and once they're seen, the person who sees them can go about making them real. It's the realisation of imagination. Imagine it, and then make it real.
3. Social skills
- Our investment and personal goals often rely on the involvement of others. Being able to talk to people and influence them can help you achieve your goals, and if you do it well, you can get many people working on your goals. Speaking and influencing skills make life MUCH easier! Fewer obstacles, and better results.
4. Creativity
- Being able to make something that doesn't exist is a priceless skill, whether it's making a makeshift tool to replace a broken one, or making a deal out of nothing.
5. Positive outlook
- The world's a tough place, and negativity is everywhere. A positive outlook is like a shield against the negativity getting in and claiming you as a victim. You probably can't be happy with a negative outlook, and isn't happiness what every investor is ultimately pursuing?
6. Ability to control own emotions
- Your emotions are millions of years in the making. They have purposes, sometimes obsolete, sometimes not. If you can master them, you can achieve that which others are prevented achieving. Fear stops people investing, greed gets them hammered, etc.
7. Self-discipline
- Humans seek a status-quo all of the time. We like it easy, we avoid pain, difficulty and displeasure. We give up pleasure in order to prevent pain. Given that most valuable achievements come at a cost of pain/discomfort/effort, self-discipline is needed to push us through "the dip" (Seth Godin) which will otherwise prevent us achieving our goals. This isn't school, and a teacher or parent won't enforce discpine for us. It's something we need to do ourselves.
8. Impatience
- Impatience is fantastic. It breeds frustration, which is a real driving force for progress, especially when progress has stalled. It forces you to keep moving.
9. Unreasonable
- There's a quote which ends: "... therefore, all progress depends on the unreasonable man". Haven't got time to google it, but it's true.
- If you are reasonable, you do that which is acceptable/within expectations/average. A reasonable person wouldn't want to build a rocket to go to the moon. A reasonable person wouldn't want to fly. A reasonable person wouldn't want to give up a $200K job to invest in property. "Reasonable" is a socially-constructed piece of b-shizzle. It's the action an average person would take. We aren't average.
10. Integrity
- People can rely on you to do what you promise. You need the help of good people, so they need to trust you. Trust is built-up from a track record of doing what you say, and acting in accordance with your principles. Besides, it's something inviolable which you can stand up and be proud of. You are the epitome of your values, your actions exemplify them, and those who know you can be certain they place their faith in you correctly.
11. Determination
- The forces in the world which act against us in our pursuit of success are numerous and powerful. Sheer determination can yield results others who give up can only dream about. We've heard the stories from prison camp survivors. We know about the miner who gave up a shovel's-width from the gold vein. The key to determination is knowing that what you are doing will result in the achievement of your goal, and that you WILL go over, around or through any obstacle between you and it. It is the hunger for the goal and the complete and violent opposition to failure which fuels it.
12. (Un)Common sense
- Developed over time, (un)common sense can help you avoid stupid mistakes. Be careful which "common" you choose. Sense which is common to everyone is probably poor. Afterall, investing is "risky", isn't it? Choose common sense from the field you are in. Eg: Professional investors consider it common-sense to minimise risk. Others gamble.
13. Learn new skills fast
- Allows you to acquire skills you need in a hurry. Makes your trip to the fast lane faster.
14. Problem-solving skills
- Problems exist because people can't/won't solve them. If you can solve them, you can sell the solution.
- You WILL come up against problems in the pursuit of your own goals. Being able to vanquish them swiftly makes your goals more attainable.
Business skills
15. Ability to construct deals
- Deals are like car parts. They aren't very valuable in their unassembled state. If you can bring unassembled components of a deal together, you can bank the benefits
16. Ability to analyse deals
- Your ability to analyse a deal well is probably proportional to the amount of success you have. Do it well, and you are more likely to invest in good deals.
17. Negotiating skills
- People don't voluntarily do what you want. You need to use your mouth to convince them to do so. Knowing what will make them do so will enhance your ability to get them to do what you want, and achieve your goals faster.
18. Risk management skills
Vital to the investor who wishes to invest for a lifetime. If you can make your risk zero, you won't lose. If you can make your risk NEGATIVE, you win even if you lose. I can't overstate this point enough. Even if you only make your risk small, you protect yourself so you can live to invest another day. Learn how to make risk small, zero or negative, and practice the techniques for doing so. Learn basic contractual ways of doing so (eg: passing risk to someone else in the deal). Learn about using assets (other people's) as your security, so if things go south, you can take their assets. Learn about corporate entities and other legal ideas to ensure your progress is never reversed because someone is suing you for a bad deal. Make sure you have good lawyer (or three) on your team and use him/her/them. Remember to layer your protection: minimise risk associated with new individual deals, protect your cash flow streams, protect your assets, protect yourself (personally) from lawsuits, protect your family, and make sure you are insured so that all feasible, insurable risks are addressed. This includes health insurance, life insurance, income protection insurance, home insurance, etc.
19. Ability to read and understand financial statements
Vital. Everyone here knows this, but let me say it again. It's like trying to be an illiterate author if you can't read, understand and even make financial statements. I've done so many I can read them, understand them, and even create them with no more effort than putting a few minutes aside to do it. Income statements are vital to record past activity, and the exact same format can be use for budgeting. Basic addition and subtraction. It isn't scary. Just learn the new words that go with it, and the format, and practice it. Professional financials are a must! Other key financial statements are also vital, so go get an accounting text book and read the chapters relating to these. If there was only a few tools I was allowed to use in investing, this one would definitely be included.
20. Good mathematical skills
- including financial ratios and algebra, knowing formulas and being able to do a lot of them mentally
- Remember the comment I made about the illiterate author? Same here. If you can't add, subtract, multiply, divide, do square roots, etc. Buy and learn how to use a financial calculator. Especially learn financial ratios, the differences between them, their advantages and disadvantages, and when to use them.
- I went for a job once where a mathematical question was asked in the interview. It was a simple fraction, and they wanted to know the percentage. Not only was I the first person in the history of the firm to get it right, it took me less than one second. Sadly, they were amazed.
21. Good computer skills
- Ability to type quickly, format documents well, search the internet well, protect your computer, and use vital tools like spreadsheets will not only make your work faster and more productive, it will enhance your ability to improve your skills faster. You can find more deals, analyse them better and quicker, and learn new skills. Considering this is a web forum, everyone here has some level of experience, but I strongly recommend constant improvement. I can touch type, write a legal document in minutes, construct large, complex spreadsheets with ease, and find the right information I need quickly. I can even program HTML/CSS and whip up a nice website from scratch in minutes, if I need it (I'd probably prefer someone else to do it, but I can still do it if need be). Knowing how to use a program like Microsoft Visio for making all kinds of diagrams is also very helpful. You can create clear diagrams of your thoughts to aid in brainstorming, and even cut'n'paste them into documents for professional-looking presentations.
22. Good due diligence skills
- Being duly diligent in the investigation of your investments/deals is another vital skill. You need to be like a police detective working a case, finding all the information you need, and combining it into an overall picture which helps you decide how to handle the deal. Good due diligence skills will save you from a great deal of bad investments, fraud, and otherwise unwise deals. It's a skill which needs to be learned, and once you learn it in one area, it can be transferred to others, although the way it is applied might be different. The thinking behind the practical actions remains similar. It is a risk minimisation tool, and one which helps ensure your capital is invested in the best possible place.
23. Ability to lead teams
- Goals which are big require more resources than you have. You need to be able to influence others to help in the pursuit of your goals, and when they are on-board, you need to be able to effectively coordinate their activities for the most effective, efficient achievement of those goals. This requires good social skills, emotional intelligence, some charisma, negotiating skills, determination, and a whole bunch of other things. Study up on some of the theory, and if you don't have people you already lead to practice on, go volunteer to lead community groups. At first, it's awkward and difficult. Soon, it's great fun, and very rewarding seeing other people helping you achieve.
24. Ability to plan goals and execute them
- CRITICAL. Don't get in the car not knowing where you are going or how you'll get there. Don't get in not knowing how to get around inevitable road blocks. Don't get in the car not knowing how to drive it. Sounds silly, but people do this with goals. Know what you want from life. Know what a goal is (a specific, measurable, attainable, realistic and time-constrained desire). Go a step further than most gurus tell you. Don't just write them down and hope for some cosmic, "secret"-esque force to magically make it happen. Take your goals, break them into tasks, and schedule them on your f***ing calendar and do them when they come up. To quote my buddy Rocky Balboa, "that's how winning is done".
25. Ability to get results, in spite of problems
- CRITICAL. Don't make excuses. Excuses are for losers. Even if it's someone else's fault, it's still an excuse. It's a reason which sounds rational as to why you can't have what you want. We're not in school anymore, and excuses don't cut it. Forget that the rest of the world operates this way, and own your results. Hold yourself accountable, don't accept defeat, and if a problem arises, go around it, over it, or through it. If your town was being invaded, would you care for any excuse, no matter what, if the invasion succeeded? Excuses are for losers, and only serve to make losers feel better about being losers.
26. Basic accounting knowledge
- Let me refine that. ACCRUAL accounting knowledge. Know why buying an asset now doesn't mean the $10K you spent on it is expensed all at once. Know why we try and match up a proportion of the asset's value with income from future periods. Know the mecahnics behind the numbers on financial statements, and basic accounting conventions. Don't go too far into bookkeeping, but know why numbers are recorded the way they are, and how you should understand them when reading them.
27. Basic tax knowledge
- Vital to know that the government invented their own way of accounting, so they can tax you based on their rules, not business rules. Get a GOOD tax accountant, and learn the basics - how much tax to pay, what rules they have for your industry, how to minimise tax legally, etc. Also know the advantages and disadvantages of how tax affects different types of entities, and which ones to use.
28. Basic legal knowledge
- Contract law basics are great to know. Do you know the handful of basic requirements for a contract? How about oral contracts? What if someone commits a civil wrong against you? Do you even know it has occured? What about risks arising from contracts you sign? Do you even know that contracts are just words someone has put down on paper for his/her own benefit, and that you can negotiate any changes you want? Did you know some legislation can override contracts? Take a basic law class at a university. Get a good set of lawyers. Ensure you consult one who is an expert in the area of business you are in. General lawyers are like doctors who aren't specialists. They know something about most stuff, but you wouldn't want one doing brain surgery on you.
Personal finance skills
29. Ability to budget WELL, and to follow it
- Converting earned income into investments is the first step most people need to master to become an investor. Knowing how to budget and meet your personal obligations while converting as much earned income to investments as possible is a critical skill. Budgeting is simple addition and subtraction. Don't let the number scare you. The real skill lies in recording numbers correctly, and changing your life to allow more income to be converted into investments. Don't fudge the numbers to make you feel better. Cut cable TV. Eat at home. etc. When the budget is done, FOLLOW THE F-ING THING. My favourite way: print it out with a small box next to each item. Each day you are paid, sit down, pay all your budget items that day, take cash out for personal discretionery spending, and move the investable cash into an investment. Have a system for how that investment cash is converted. You might park it in a cash account and make investments quarterly. Just don't keep it in your normal bank account. Budgeting well means this: your personal expenses are minimised, and your obligations are met. Your actual expenses are the same as, or less than the amount you budgeted. Most emergencies will not make you break your budget. Your budget is executed perfectly each month (that's why I don't allow too much time between receiving income and investing it - less time, less margin for error).
30. Ability to control personal expenses and invest significant proportion of income
- Personal expenses use cash which can never be invested. You traded hours of your life for that cash which can never be lived again. Make sure the expense is worthy of those precious hours of life. If not, cut the expense and invest it. Don't live like a pauper now, just don't go nuts. Live in an acceptable manner now, and limit expenses to those which are wisest. Move remaining cash into investments. 10% savings for investment is a good place to start, but a professional investor would probably not spend 90% of his/her income on stuff which doesn't make money.
31. Ability to manage credit rating
- You'll eventually run out of cash to invest with. You may need to use institutional funds, and knowing how credit ratings work is vital. Even more important is maintaining yours, so you can get the cash you need, when you need it, at an acceptable interest rate.
32. Ability to create an investment strategy, continuously improve it, and STICK WITH IT
- You are probably converting earned income into investments currently. Having an investment strategy doesn't just mean "I invest in property". It means you know how to move the cash you earned into its first investment, what to do with the returns, which other investment vehicles to use and when, and how to protect the money from loss and excessive taxes. Mine's in a flowchart form. Income goes in at the top, and filters down according to rules I have set. When my investments provide a cash return, the cash travels up the flowchart page and re-enters the flowchart from the top. Rinse and repeat.
Resources
33. Cash available for opportunities that arise
- Either you have enough cash to take advantage of opportunities you see, or better still, you have access to it from someone else. Use as little cash as you can. If you invest $0 in a $500K investment which pays you back $50K in a month, what's your real cash-on-cash return? I dare you to try working it out
34. Knowing the right people for advice, finance, new contacts and partnerships (lawyers, accountants, bankers, etc)
- Good social networks are vital. If you can pick up the phone and get the funds you need, the knowledge and skills you lack, and access other important people through your contacts, not only do you feel like a player, you're working the same way the fast lane guys do.
35. Ability to borrow a significant sum of money within a week (to catch fast-moving opportunities)
- If someone was selling a pallet-load of $100 bills for 50 cents each on the street corner, could you raise the cash you need to buy the whole pallet? I don't think this needs more explanation.
36. Know the time value of money
- Knowing why a dollar is worth more today than tomorrow is vital. If I asked you whether you'd prefer to receive $10,000 from me today for a note you own, or $15,000 over the next year, which would you choose? This isn't a hard calculation, and a pro can do it on a financial calculator in less than a minute. Even a normal scientific calculator with no financial functions won't stop a pro.
- Knowing how to compare different investments is vital, and relies on the time value of money being understood. Most people calculate wrong (their numbers add up right, but they are still comparing apples and oranges. The right formula turns apples into oranges, so you can compare oranges with oranges).
Other stuff I missed
37. Financial modelling skills
- Once you can operate a spreadsheet program well, you can build financial models. You can do all sorts of cool calculations, like testing out different scenarios. What if the business performs half as well as I think it will (will the deal then be deadly?) What happens if interest rates go up (will I still be cash flow positive?). Etc. Basically plug in a bunch of variables, construct some rules, and change the variables to see what happens. Very powerful.
38. Vocabulary
- Being able to talk the talk means you're at the big boys' table, and gets your foot in the door to understanding the concepts behind them. If I said to you that the Packers were 1 point down in the 4th quarter, 4th and long on there own 20 yard line with 5 seconds on the clock, I'm sure you could not only understand it, but also figure out what's likely to happen. Would you know what I meant if I offered you an owner carryback on a business for $5m, $1m EBITDA, 28% ROE, $1m SAV, WIWO, etc, would you know what I was talking about? These are easy for a pro in my line of business to understand. Make sure you know yours.
39. Common tools of the trade
- You have enough blank contracts, due diligence forms, an extensive phone list, bank account numbers, cheque book (Australian spelling, don't correct it!), business cards, letterhead, etc. Basically, you have the tools you need to get the job done.
Selling skills
Credit to Greenhouses for pointing out my oversight! I'll add some more on this soon.
None of this is new. I didn't invent most of this, but I thank my lucky stars I know them.
I've gone to a lot of effort to write this, so I hope it is valuable to you.
Please don't feel you have to be so detailed in your answer!
Also note that it is in a very rough form, and I haven't refined it much. If it doesn't sound quite right, let me know and I'll revise it.
Daniel.
What skills/abilities/resources/habits do you think should be in every investor's tool kit, and why?
In other words, if we thought of investing as a trade, what would the mandatory tools of a master tradesman/tradeswoman be?
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Mine, in a rather disorganised state, and written quickly without editing:
Personal skills
1. Knowing your own life purpose and why investing is vital to it
- This can be a massive motivator - you'll be motivated to be a very successful investor if you know WHY you are investing. Money for money's sake isn't the great motivator it's portrayed to be. On the other hand, the thing that drives you to LIVE will be a fantastic motivator.
2. Ability to see opportunities
- Opportunities are everywhere, but it takes a special mind to see ones which others can't. They are there, but at the same time, they aren't. They need to be seen to exist, and once they're seen, the person who sees them can go about making them real. It's the realisation of imagination. Imagine it, and then make it real.
3. Social skills
- Our investment and personal goals often rely on the involvement of others. Being able to talk to people and influence them can help you achieve your goals, and if you do it well, you can get many people working on your goals. Speaking and influencing skills make life MUCH easier! Fewer obstacles, and better results.
4. Creativity
- Being able to make something that doesn't exist is a priceless skill, whether it's making a makeshift tool to replace a broken one, or making a deal out of nothing.
5. Positive outlook
- The world's a tough place, and negativity is everywhere. A positive outlook is like a shield against the negativity getting in and claiming you as a victim. You probably can't be happy with a negative outlook, and isn't happiness what every investor is ultimately pursuing?
6. Ability to control own emotions
- Your emotions are millions of years in the making. They have purposes, sometimes obsolete, sometimes not. If you can master them, you can achieve that which others are prevented achieving. Fear stops people investing, greed gets them hammered, etc.
7. Self-discipline
- Humans seek a status-quo all of the time. We like it easy, we avoid pain, difficulty and displeasure. We give up pleasure in order to prevent pain. Given that most valuable achievements come at a cost of pain/discomfort/effort, self-discipline is needed to push us through "the dip" (Seth Godin) which will otherwise prevent us achieving our goals. This isn't school, and a teacher or parent won't enforce discpine for us. It's something we need to do ourselves.
8. Impatience
- Impatience is fantastic. It breeds frustration, which is a real driving force for progress, especially when progress has stalled. It forces you to keep moving.
9. Unreasonable
- There's a quote which ends: "... therefore, all progress depends on the unreasonable man". Haven't got time to google it, but it's true.
- If you are reasonable, you do that which is acceptable/within expectations/average. A reasonable person wouldn't want to build a rocket to go to the moon. A reasonable person wouldn't want to fly. A reasonable person wouldn't want to give up a $200K job to invest in property. "Reasonable" is a socially-constructed piece of b-shizzle. It's the action an average person would take. We aren't average.
10. Integrity
- People can rely on you to do what you promise. You need the help of good people, so they need to trust you. Trust is built-up from a track record of doing what you say, and acting in accordance with your principles. Besides, it's something inviolable which you can stand up and be proud of. You are the epitome of your values, your actions exemplify them, and those who know you can be certain they place their faith in you correctly.
11. Determination
- The forces in the world which act against us in our pursuit of success are numerous and powerful. Sheer determination can yield results others who give up can only dream about. We've heard the stories from prison camp survivors. We know about the miner who gave up a shovel's-width from the gold vein. The key to determination is knowing that what you are doing will result in the achievement of your goal, and that you WILL go over, around or through any obstacle between you and it. It is the hunger for the goal and the complete and violent opposition to failure which fuels it.
12. (Un)Common sense
- Developed over time, (un)common sense can help you avoid stupid mistakes. Be careful which "common" you choose. Sense which is common to everyone is probably poor. Afterall, investing is "risky", isn't it? Choose common sense from the field you are in. Eg: Professional investors consider it common-sense to minimise risk. Others gamble.
13. Learn new skills fast
- Allows you to acquire skills you need in a hurry. Makes your trip to the fast lane faster.
14. Problem-solving skills
- Problems exist because people can't/won't solve them. If you can solve them, you can sell the solution.
- You WILL come up against problems in the pursuit of your own goals. Being able to vanquish them swiftly makes your goals more attainable.
Business skills
15. Ability to construct deals
- Deals are like car parts. They aren't very valuable in their unassembled state. If you can bring unassembled components of a deal together, you can bank the benefits
16. Ability to analyse deals
- Your ability to analyse a deal well is probably proportional to the amount of success you have. Do it well, and you are more likely to invest in good deals.
17. Negotiating skills
- People don't voluntarily do what you want. You need to use your mouth to convince them to do so. Knowing what will make them do so will enhance your ability to get them to do what you want, and achieve your goals faster.
18. Risk management skills
Vital to the investor who wishes to invest for a lifetime. If you can make your risk zero, you won't lose. If you can make your risk NEGATIVE, you win even if you lose. I can't overstate this point enough. Even if you only make your risk small, you protect yourself so you can live to invest another day. Learn how to make risk small, zero or negative, and practice the techniques for doing so. Learn basic contractual ways of doing so (eg: passing risk to someone else in the deal). Learn about using assets (other people's) as your security, so if things go south, you can take their assets. Learn about corporate entities and other legal ideas to ensure your progress is never reversed because someone is suing you for a bad deal. Make sure you have good lawyer (or three) on your team and use him/her/them. Remember to layer your protection: minimise risk associated with new individual deals, protect your cash flow streams, protect your assets, protect yourself (personally) from lawsuits, protect your family, and make sure you are insured so that all feasible, insurable risks are addressed. This includes health insurance, life insurance, income protection insurance, home insurance, etc.
19. Ability to read and understand financial statements
Vital. Everyone here knows this, but let me say it again. It's like trying to be an illiterate author if you can't read, understand and even make financial statements. I've done so many I can read them, understand them, and even create them with no more effort than putting a few minutes aside to do it. Income statements are vital to record past activity, and the exact same format can be use for budgeting. Basic addition and subtraction. It isn't scary. Just learn the new words that go with it, and the format, and practice it. Professional financials are a must! Other key financial statements are also vital, so go get an accounting text book and read the chapters relating to these. If there was only a few tools I was allowed to use in investing, this one would definitely be included.
20. Good mathematical skills
- including financial ratios and algebra, knowing formulas and being able to do a lot of them mentally
- Remember the comment I made about the illiterate author? Same here. If you can't add, subtract, multiply, divide, do square roots, etc. Buy and learn how to use a financial calculator. Especially learn financial ratios, the differences between them, their advantages and disadvantages, and when to use them.
- I went for a job once where a mathematical question was asked in the interview. It was a simple fraction, and they wanted to know the percentage. Not only was I the first person in the history of the firm to get it right, it took me less than one second. Sadly, they were amazed.
21. Good computer skills
- Ability to type quickly, format documents well, search the internet well, protect your computer, and use vital tools like spreadsheets will not only make your work faster and more productive, it will enhance your ability to improve your skills faster. You can find more deals, analyse them better and quicker, and learn new skills. Considering this is a web forum, everyone here has some level of experience, but I strongly recommend constant improvement. I can touch type, write a legal document in minutes, construct large, complex spreadsheets with ease, and find the right information I need quickly. I can even program HTML/CSS and whip up a nice website from scratch in minutes, if I need it (I'd probably prefer someone else to do it, but I can still do it if need be). Knowing how to use a program like Microsoft Visio for making all kinds of diagrams is also very helpful. You can create clear diagrams of your thoughts to aid in brainstorming, and even cut'n'paste them into documents for professional-looking presentations.
22. Good due diligence skills
- Being duly diligent in the investigation of your investments/deals is another vital skill. You need to be like a police detective working a case, finding all the information you need, and combining it into an overall picture which helps you decide how to handle the deal. Good due diligence skills will save you from a great deal of bad investments, fraud, and otherwise unwise deals. It's a skill which needs to be learned, and once you learn it in one area, it can be transferred to others, although the way it is applied might be different. The thinking behind the practical actions remains similar. It is a risk minimisation tool, and one which helps ensure your capital is invested in the best possible place.
23. Ability to lead teams
- Goals which are big require more resources than you have. You need to be able to influence others to help in the pursuit of your goals, and when they are on-board, you need to be able to effectively coordinate their activities for the most effective, efficient achievement of those goals. This requires good social skills, emotional intelligence, some charisma, negotiating skills, determination, and a whole bunch of other things. Study up on some of the theory, and if you don't have people you already lead to practice on, go volunteer to lead community groups. At first, it's awkward and difficult. Soon, it's great fun, and very rewarding seeing other people helping you achieve.
24. Ability to plan goals and execute them
- CRITICAL. Don't get in the car not knowing where you are going or how you'll get there. Don't get in not knowing how to get around inevitable road blocks. Don't get in the car not knowing how to drive it. Sounds silly, but people do this with goals. Know what you want from life. Know what a goal is (a specific, measurable, attainable, realistic and time-constrained desire). Go a step further than most gurus tell you. Don't just write them down and hope for some cosmic, "secret"-esque force to magically make it happen. Take your goals, break them into tasks, and schedule them on your f***ing calendar and do them when they come up. To quote my buddy Rocky Balboa, "that's how winning is done".
25. Ability to get results, in spite of problems
- CRITICAL. Don't make excuses. Excuses are for losers. Even if it's someone else's fault, it's still an excuse. It's a reason which sounds rational as to why you can't have what you want. We're not in school anymore, and excuses don't cut it. Forget that the rest of the world operates this way, and own your results. Hold yourself accountable, don't accept defeat, and if a problem arises, go around it, over it, or through it. If your town was being invaded, would you care for any excuse, no matter what, if the invasion succeeded? Excuses are for losers, and only serve to make losers feel better about being losers.
26. Basic accounting knowledge
- Let me refine that. ACCRUAL accounting knowledge. Know why buying an asset now doesn't mean the $10K you spent on it is expensed all at once. Know why we try and match up a proportion of the asset's value with income from future periods. Know the mecahnics behind the numbers on financial statements, and basic accounting conventions. Don't go too far into bookkeeping, but know why numbers are recorded the way they are, and how you should understand them when reading them.
27. Basic tax knowledge
- Vital to know that the government invented their own way of accounting, so they can tax you based on their rules, not business rules. Get a GOOD tax accountant, and learn the basics - how much tax to pay, what rules they have for your industry, how to minimise tax legally, etc. Also know the advantages and disadvantages of how tax affects different types of entities, and which ones to use.
28. Basic legal knowledge
- Contract law basics are great to know. Do you know the handful of basic requirements for a contract? How about oral contracts? What if someone commits a civil wrong against you? Do you even know it has occured? What about risks arising from contracts you sign? Do you even know that contracts are just words someone has put down on paper for his/her own benefit, and that you can negotiate any changes you want? Did you know some legislation can override contracts? Take a basic law class at a university. Get a good set of lawyers. Ensure you consult one who is an expert in the area of business you are in. General lawyers are like doctors who aren't specialists. They know something about most stuff, but you wouldn't want one doing brain surgery on you.
Personal finance skills
29. Ability to budget WELL, and to follow it
- Converting earned income into investments is the first step most people need to master to become an investor. Knowing how to budget and meet your personal obligations while converting as much earned income to investments as possible is a critical skill. Budgeting is simple addition and subtraction. Don't let the number scare you. The real skill lies in recording numbers correctly, and changing your life to allow more income to be converted into investments. Don't fudge the numbers to make you feel better. Cut cable TV. Eat at home. etc. When the budget is done, FOLLOW THE F-ING THING. My favourite way: print it out with a small box next to each item. Each day you are paid, sit down, pay all your budget items that day, take cash out for personal discretionery spending, and move the investable cash into an investment. Have a system for how that investment cash is converted. You might park it in a cash account and make investments quarterly. Just don't keep it in your normal bank account. Budgeting well means this: your personal expenses are minimised, and your obligations are met. Your actual expenses are the same as, or less than the amount you budgeted. Most emergencies will not make you break your budget. Your budget is executed perfectly each month (that's why I don't allow too much time between receiving income and investing it - less time, less margin for error).
30. Ability to control personal expenses and invest significant proportion of income
- Personal expenses use cash which can never be invested. You traded hours of your life for that cash which can never be lived again. Make sure the expense is worthy of those precious hours of life. If not, cut the expense and invest it. Don't live like a pauper now, just don't go nuts. Live in an acceptable manner now, and limit expenses to those which are wisest. Move remaining cash into investments. 10% savings for investment is a good place to start, but a professional investor would probably not spend 90% of his/her income on stuff which doesn't make money.
31. Ability to manage credit rating
- You'll eventually run out of cash to invest with. You may need to use institutional funds, and knowing how credit ratings work is vital. Even more important is maintaining yours, so you can get the cash you need, when you need it, at an acceptable interest rate.
32. Ability to create an investment strategy, continuously improve it, and STICK WITH IT
- You are probably converting earned income into investments currently. Having an investment strategy doesn't just mean "I invest in property". It means you know how to move the cash you earned into its first investment, what to do with the returns, which other investment vehicles to use and when, and how to protect the money from loss and excessive taxes. Mine's in a flowchart form. Income goes in at the top, and filters down according to rules I have set. When my investments provide a cash return, the cash travels up the flowchart page and re-enters the flowchart from the top. Rinse and repeat.
Resources
33. Cash available for opportunities that arise
- Either you have enough cash to take advantage of opportunities you see, or better still, you have access to it from someone else. Use as little cash as you can. If you invest $0 in a $500K investment which pays you back $50K in a month, what's your real cash-on-cash return? I dare you to try working it out
34. Knowing the right people for advice, finance, new contacts and partnerships (lawyers, accountants, bankers, etc)
- Good social networks are vital. If you can pick up the phone and get the funds you need, the knowledge and skills you lack, and access other important people through your contacts, not only do you feel like a player, you're working the same way the fast lane guys do.
35. Ability to borrow a significant sum of money within a week (to catch fast-moving opportunities)
- If someone was selling a pallet-load of $100 bills for 50 cents each on the street corner, could you raise the cash you need to buy the whole pallet? I don't think this needs more explanation.
36. Know the time value of money
- Knowing why a dollar is worth more today than tomorrow is vital. If I asked you whether you'd prefer to receive $10,000 from me today for a note you own, or $15,000 over the next year, which would you choose? This isn't a hard calculation, and a pro can do it on a financial calculator in less than a minute. Even a normal scientific calculator with no financial functions won't stop a pro.
- Knowing how to compare different investments is vital, and relies on the time value of money being understood. Most people calculate wrong (their numbers add up right, but they are still comparing apples and oranges. The right formula turns apples into oranges, so you can compare oranges with oranges).
Other stuff I missed
37. Financial modelling skills
- Once you can operate a spreadsheet program well, you can build financial models. You can do all sorts of cool calculations, like testing out different scenarios. What if the business performs half as well as I think it will (will the deal then be deadly?) What happens if interest rates go up (will I still be cash flow positive?). Etc. Basically plug in a bunch of variables, construct some rules, and change the variables to see what happens. Very powerful.
38. Vocabulary
- Being able to talk the talk means you're at the big boys' table, and gets your foot in the door to understanding the concepts behind them. If I said to you that the Packers were 1 point down in the 4th quarter, 4th and long on there own 20 yard line with 5 seconds on the clock, I'm sure you could not only understand it, but also figure out what's likely to happen. Would you know what I meant if I offered you an owner carryback on a business for $5m, $1m EBITDA, 28% ROE, $1m SAV, WIWO, etc, would you know what I was talking about? These are easy for a pro in my line of business to understand. Make sure you know yours.
39. Common tools of the trade
- You have enough blank contracts, due diligence forms, an extensive phone list, bank account numbers, cheque book (Australian spelling, don't correct it!), business cards, letterhead, etc. Basically, you have the tools you need to get the job done.
Selling skills
Credit to Greenhouses for pointing out my oversight! I'll add some more on this soon.
None of this is new. I didn't invent most of this, but I thank my lucky stars I know them.
I've gone to a lot of effort to write this, so I hope it is valuable to you.
Please don't feel you have to be so detailed in your answer!
Also note that it is in a very rough form, and I haven't refined it much. If it doesn't sound quite right, let me know and I'll revise it.
Daniel.
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