A Tale of Two Investors
I’ve spoken to several investors over the last few weeks, and there are so many things that come to mind regarding how they are each behaving and thinking differently.
So, I’ve selected two investors whose journey’s make excellent case studies, and I’m going to share them with you and drive home what I see as being the key differences between their processes.
Both had game plans, but one hit their goals, and the other didn’t. So what were they doing? What were they thinking? What was the difference? Why did one have a disproportionately higher rate of success than the other?
That’s what we are going to unpack.
The Backstory Behind the Two Investors
First of all, I want to start by giving you some context into their investment journey.
These two people started out investing at the same time. They had identical incomes (or salaries) coming out of their business. And over ten years, one had pretty much hit their goals, and the other one had not – in fact, he was still 25 years away.
Now, both of them have invested in education – different kinds of education, though. And they both put a similar amount of time each year into their investing endeavours.
I would argue that both are similarly bright in terms of intelligence and access to resources, so there was no outward difference in terms of their capacity to create wealth.
There are, however, some differences from a personality point of view.
From a starting point, both had clarity on why they were investing – they wanted to create and build wealth. They both aspired to create financial freedom.
Investor one had absolute clarity on what they wanted to achieve and by when they wanted to achieve it. Investor two knew what they wanted to achieve and wanted to do it as soon as possible – so it wasn’t necessarily a precise and defined timeline.
One of the things I’m mindful of when I look around the landscape of education and information in the property and wealth space is that there is an avalanche of information. Some of it is great information and will serve you, and some of it will not serve you. So, the greatest challenge for anyone wanting to build wealth is wading through all of that.
Some things will be a distraction, while other things can be critical information. So as the lay investor, how do you distinguish between the two?
Utilising a Strategic Viewpoint on Investments
But on the overall scale of things, there are two major differences between investor one and investor two. Investor one had a much stronger focus on strategy from the get-go. So, the focus was on the game plan they needed to get them from where they were to where they wanted to be in ten years.
Focusing on Tactics
Investor two tended to focus a little bit on tactics without giving context to the overarching strategy.
I work with quite a few young investors, and I constantly counsel them on the need to weigh up the difference between staying out of the market because you can’t afford a quality investment property versus jumping straight in just to get your foot in the door.
Now, I’m certainly not arguing that one is better than the other. Instead, I’m suggesting that it’s not necessarily complex mathematics to work out. If you buy property X, where will you be in five to ten years? It’s simple, but so many investors don’t ever ask and answer that question. They look at their odds and jump in because they can afford it.
That’s just one example of maybe being more tactical rather than strategic.
First of all, focusing on strategy means that you’re analysing what investments you need to get the outcome you want in the time frame you have.
This will allow you to put a line through investments or tactical ideas that aren’t congruent with your overall strategy. For example, suppose investor two has gone out and purchased a whole lot of cheap units in areas where the market has typically been quite flat. If that is the case, the volume of properties they hold might be higher, and the growth they’ve had has been nominal because they’ve chosen to buy in an area they can afford.
But from a net capital point of view, they’ve created less capital.
Whereas, the other investor might have said, “Well, I could either go out and buy a whole bunch of cheap units, or I can focus on buying properties that I think are likely to have the highest probability of solid growth in the current environment.”
That may mean you have to hold off on jumping into a property for a year two because you haven’t quite got the deposit together at that point.
And while it might be true that market timing matters, you still have to bear in mind that if you purchase underperforming assets, that completely negates the ‘market timing’ statement.
So, having a strategic viewpoint is all about asking yourself how you’re going to find deals that get you to the capital base you want to then decide how to ramp up cash flow.
Strategies Versus Tactics
People, in general, get confused about the difference between tactics and strategies.
There are lots of tactics that I can give someone in terms of how they can go about finding a premium deal in the middle of a seller’s market. But, unfortunately, what a lot of people are selling is the sizzle associated with tactics—in other words, selling quick wins.
I don’t disagree that those things are useful. Instead, I’m suggesting that they’re only useful in the context of having a bigger game plan in terms of what you’re trying to achieve and how you are going to get there.
So, you need to make sure that, when you’re consuming information, that you can identify what is tactical and what is strategic. And be clear about how it’s going to influence you in terms of your next move.
The next thing you need to be super clear about when it comes to strategies is your risk appetite. The strategic investors are clear about the risk they’re prepared to take. Don’t ever invest purely from a position of FOMO (the fear of missing out).
And then the final piece around being strategic is having a set of investment rules. I have a system that I apply to everything I do around my investing – whether it’s thinking about a prospective tenant, identifying a potential deal or vetting any kind of deal flow. It’s very rare that I bend those rules or deviate from them.
And the beauty of having a set of predefined rules is that you are less likely to be susceptible to emotion. So many of us think rationally about how we run our business or how we approach work matters. But then, when we invest, for some reason, emotion comes into play, and it completely overshadows the logic.
Investor one, in this instance, was extremely clear about all those strategic things. They knew the outcome they wanted, the timeline they wanted it in, and they focused on deals that got them to the capital base they needed sooner – instead of just building up a high volume of deals for the sake of it.
The idea of ten properties in ten years is massively outdated and isn’t necessarily the silver bullet to get you to financial freedom.
Investor one also spent time understanding the difference between strategy and tactic. They were able to stomach the possibility of having to forego being in the market to leverage into better deals, and they were super clear on their risk appetite. They didn’t let money burn a hole in their pocket and never invested because of FOMO – their investment rules aligned with their strategy.
Focus on Relationship Building
The other component in terms of the difference between investor one and investor two, which I think had a massive contribution to their outcome, was their focus on relationship building.
Too many of us build wealth as a lone wolf or a silo. We think we need to do and understand everything ourselves. And to a certain degree, there is an element of that – you need to understand the components and mechanics of wealth building.
But the smartest investors are the ones who make sure they are making informed decisions, that they never invest in things they don’t understand, and they certainly don’t speculate unless they’re doing it intentionally.
I talked to someone over the weekend who has recently gone out and purchased their first home, and it has been an incredibly stressful experience. I have so much empathy for first homeowners who are trying to crack into the market right now. But one of the things that I’ve counselled several investors on is how to go about positioning yourself to purchase your first home.
And frankly, the ideas that I share around that are no different to whether you are buying your first property or your 10th or 15th investment property. The rules around relationship-building are the same. If you focus on building relationships in markets and areas, whether the sorts of deals you want to do exist, then you are immediately giving yourself a cutting edge over someone who takes the seagull approach to investing.
Suppose you think about it from the perspective of a real estate agent, deal maker or someone looking for investor participation. In that case, you’re going to want to deal with people who know what they’re doing, understand the numbers and who are not time wasters.
Building relationships is all about being transparent, respecting other people’s times and expertise and bringing humility to the process.
The reason why I am bringing this up as the second major difference between investor one and investor two is, investor one is playing the long game.
One of the things I experience from talking to dozens of investors each year is that many people talk a big game. But, I think there’s way more value in being humble and asking for help making the right decision.
And that’s a very different approach to investing and building relationships than the person who flies in and says, “I already know all this stuff, and I’m looking for this deal.”
If you can do relationship building well, not only will it serve you in finding the next deal, but it will serve you for the rest of your life and beyond. And investor one did that very well.
I often speak to investors who have been on their journey for a long time but aren’t getting the results they want and can’t figure out why.
So, identifying these blind spots as to why some people get ahead and why some people flounder is a big part of why I share this information with you to understand the subtle edges people are giving themselves to create exponential gains over time.
If you’re interested in understanding how to create wealth through alternative strategies, please check out my programs, where I help you catapult your investment income and blend strategies to shave decades off your timeline to financial freedom.
Or, you’re welcome to get in touch today, book a call with me, and I would be happy to talk you through it – no obligation!
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