Stocks, bonds, index funds, real estate, person to person lending (P2P), crowdfunding, precious metals, business ownership. With so many choices to invest in, it can be mind-blowing to figure which one(s) is best for you. What’s a person to do?
Let’s start by figuring out what is your Investor DNA.
What is Investor DNA?
As discussed by Garrett Gunderson of Wealth Factory, Investor DNA is understanding what type of investments fit your personality, your values, and your inherent skillsets.
Too often, people will jump on the bandwagon of the next investing trend, the next hot stock tip, or the next “great” investment opportunity. What they don’t ask themselves is, WHY should I invest in this? Does it match “who I am”?
What I mean by “who I am” can be defined by the following 3 things:
Values – Everything begins with your values. Value define who you are, what you believe in, and what you stand for.
Values help to determine what types of investments fit your personal profile. If investments are aligned with values, odds are the investment is also aligned with your passion & interests.
You may be asking yourself what do I mean by values? Value can be a nebulous term dependent on how deep one reflects on it.
Personally, I am highly attracted to companies that display vision, integrity, and have a higher purpose. These companies are not just in it to make a profit but impact the world as well.
I also have certain habits that I cannot stand. For example, I am not a smoker. Never liked it and never will. As a result, I don’t care how much of a deal a stock like Altria (a tobacco company) might be, I’ll never invest in it.
Other values that potentially impact the investments I choose is freedom, cash flow, margin of safety, and independence.
I love investments that generate cashflow. As my old accounting professor preached, “Cash is King!”. Cash generation open doors and provides a buffer for any potential setbacks that may occur. Cash flow also allows me to make choices on how and where to re-invest my money.
Core Drivers – Core drivers are interests, obsessions, passions, and natural curiosities that motivate and drive you.
An example is my passion for cooking. While I am far from being a culinary chef, I do enjoy cooking. It relaxes me. I enjoy inventing new dishes on the fly. Working in restaurants during my college years helped to pay the bills. As a result, I have contemplated about owning a restaurant franchise in the future. Not sure if I will but is in my wheelhouse of passions and something I will keep in mind in the future.
Another example is my passion for the outdoors, I love camping, hiking, hunting and generally just enjoy being in the open fresh air. As a result, I could potentially see myself buying stock in Dick’s Sporting Goods (if at a good value…. we’ll talk more about that in a future article 
)
By sticking to what you may have a natural curiosity about, you’ll be engaged to learn more about that investment. You’ll learn to ask insightful questions that delve deeper than would have occurred if no passion or interest was displayed.
Core Competencies – Core competencies are things you have knowledge in, what you have a knack for, and ability in. In fact, it is not just about ability but also excellence in. You’re able to see thigs that others don’t and can be applied in the investing world.
For example, I love and have a knack for wheeling ‘n’ dealing. I enjoy finding diamonds in the rough that can be bought at a discount, fixed up, and then sold at a premium. I enjoy the bargaining and negotiating that goes on. I enjoy understanding the needs of others and figuring out “win-win” situations.
I also enjoy managing projects, tracking performance, and anticipating potential problems. I enjoy working with people and maximizing their abilities. I enjoy managing projects holistically and have a natural knack for this.
I can see a lot of possible applications for these talents. One example is real estate. A possible option for me is to find a dilapidated house, fix up, and then either flip for a profit or rent it out to generate cash flow. I value my time immensely and probably would hire someone to be the property manager so I wouldn’t have to. I know it would cost me some of my profits, but my time is worth WAY more!
How You Benefit
By following these 3 principles, your Investor DNA will potentially lead to a reduction in risk, loss avoidance, and boost overall returns of your investments. How might this occur?
It can be achieved by the following ways:
Improving Focus – By providing clarity on what is important to you, your focus will improve returns. While true asset diversification is good, investing in things you have no knowledge, experience, passion, or ability in will actually increase risk and potentially limit returns.
Not understanding what you are investing in adds incremental risk. Remember, there are 2 types of risk: risk in the investment AND risk in the investor. Do everything you can to minimize both.
Understanding Opportunity Costs – Opportunity cost means understanding all the implications of spending a dollar on an investment. By comparing the highest net rate of return on an investment or an expense, investments can be analyzed to optimize the allocation of your hard-earned money. By doing this analysis, you may find that the risk is not worth the reward. I prefer to call this the “Is juice is worth the squeeze?” analogy. This is a critical component of your Investor DNA.
For example, let’s say you have 2 great options to invest your money. The 1st choice (Option A) produces a net rate of return of 8% and the 2nd choice (Option B) produces a net rate of return of 10%. All things being equal including assuming both investments fit your Investor DNA, the obvious choice is Option B.
Now let’s try this assumption: you also happen to have a large amount of high interest credit card debt to pay off (Option C) that is accumulating interest at a rate of 15% (not an uncommon rate for today’s credit cards). Which option should you NOW choose?
I could argue that paying off high interest credit card debt that is significantly eating into your cashflow should be paid off first since, in the long run, this would free up more cashflow for investing and optimize your long-term financial outlook.
The point of this exercise is to understand the opportunity cost, all the potential uses of your funds AND all the possible consequences, before committing to an investment.
Understanding the Value Proposition – A value proposition is understanding the ‘why’ behind a business proposition and what problem it potentially solves. Knowing the value proposition lets you understand the 3 key aspects of any investment:
- How you benefit – add clarity on how you benefit either now or in the future
- How the “other guy” benefits – helps to understand how they have “skin in the game”
- How is the overall marketplace impacted (either positively or negatively) – helps you understand the reasons to invest in something other than the rate of return.
By understanding these 3 key aspects of the investment, you’ll not only understand the economics of the investment but also understand the downside of the investment. Knowing these aspects will also enable you to understand how to devise an exit strategy when it is time to get out.
Questions to Ask
What is the best way to find the right answers and achieve better overall success?…… ask good questions. Asking good questions will enable you to conduct thorough due diligence, to understand the investment better, and to become a better overall investor. Take the time to learn what questions to ask.
Below are a few sample questions that can be asked:
- What type of investments do I have knowledge in?
- What skills, knowledge, and interests can I leverage to discover investments that are right for me?
- What am I curious about? What are my passions?
- Do I know anybody who can mentor me?
- How do I make money from day 1?
- What can I do to minimize risk?
Tools to Understand Your Investor DNA
Here is a tool from Garret Gunderson of The Wealth Factory, a great resource for learning about Investor DNA. I have also personally used this tool to identify investment opportunities that fit my personal Investor DNA.
At Wealth Factory, he also has a lot of other useful tips and insights including how to change your mindset from scarcity to that of abundance, how to keep more of what you make, and much more! Listen to a podcast he delivered here on Get Rich Education with Keith Weinhold to learn more about Investor DNA.
Conclusion
Investing is more than just looking at the numbers in order to make good decisions. Looking at just the numbers can potentially set yourself up for a lot of anxiety, frustration, and even failure. Staying within what you know and understand as well as what’s important to you will set yourself up for success.
When you focus on your Investor DNA, you focus on your personal values, competencies, drivers, and interests. It also allows you to focus on how you can contribute and how you can make a difference not only in your life but others as well.
Making investment decisions from a more holistic place enables you to make more sound financial decisions and as a result more money in the long run.
So the next time you think about investing your money, use the attached sheet above to assess if its right for you along with answering the following questions below to begin unlocking you Investor DNA:
- What makes you tick?
- What’s important to you?
- What not only aligns with but also violates your values?
- What would you bring you joy and happiness to be involved in?
You’ll be glad you did!
Live the Life you Want, Love, and Deserve!