Episode Details

I’m a huge fan of Seth Godin’s work. He’s a presenter, author and entrepreneur and if you have any interest in marketing or business, you must subscribe to his daily blog. Anyway, his recent blog about the difference between an amateur and professional got me thinking. I think many of us could benefit from approaching our finances more professionally.

The different between a professional and amateur

Often, a professional investor such as a fund manager approaches investing a lot differently than an amateur investor. I have listed some of these differences below to highlight this point.

Professional

– Understands that making investment decisions requires experience, education and understanding the market

– Seeks out experts in their field and is willing to pay a fair fee for their advice

– Will have a methodology for hiring and firing advice professionals – a clear list of things they want and want to avoid, thorough methodology, etc.

– Will hold their advisors accountable for producing results

– Won’t try and take on a task that is outside their sphere of experience

– They make investment decisions on a daily basis

– Will take almost any steps to ensure the risk of losing capital is low or non-existent.

Amateur

– Has no metric or methodology for measuring the value of advice

– Asks friends or colleagues for advice

– Is prepared to have a go at trying to do it themselves before asking for help

– Considers it a saving if he works it all out himself and therefore don’t need to pay anyone for advice

– To some extent, is guided by emotions e.g. it feels right, falls in love with the potential returns, etc.

– Gets seduced by investment returns and doesn’t adequately consider (and mitigate) investment risks

– Doesn’t realise the danger of their lack of experience

– Makes a handful (or less) of investment decisions over their lifetime.

– Its prepared to make a mistake i.e. learn through trial and error.

But we don’t compromise on some things…

Imagine how you would react if your friend told you that he did his spouses dentistry work. Or wrote their own will. Almost all of us understand the perils (stupidity) of this and wouldn’t even consider trying. Instead, we find a professional than we respect and trust because we have what phycologists refer to as conscious incompetence. That is, we know that we have a deficit of knowledge and experience to do it ourselves.

Your responsibility is to manage the people that manage the money

Just because you can do your own financial planning, taxation, loan structuring – it doesn’t mean you should. More importantly, maybe you have misunderstood your role. Your role is to not figure it all out yourself. That is potentially way too costly in the long run. Instead, your role is to hire the best people you can afford to help you make the smartest possible decisions. It’s what we all do in other areas of our life. It’s what successful professional investors do too.

Use a professional lends when selecting the right people to have on your team

In order to do this successfully, you have to have a robust methodology for selecting the right professionals. Here are some of the things I consider when selecting other professionals that help my clients.

1. How do they make money?

It’s important