At the very core, good investors share some skills with free riders.
I am not implying that investing does not involve work, just that it involves more of pattern recognition, fine judgement and nuanced decision making rather than tangible work on a daily basis.
Let’s drill deeper here.
When you invest into a business, who does the work of growing the business? Not you
Who has more options at hand and can walk away from the business if it does not perform? Not the entrepreneur, not the operating manager and surely not the employees of the business
Other than understanding the business, making the decision to invest and periodically evaluating if things are on track, does the investor have to expend daily effort on the business? No
There is a reason why investing is placed on a pedestal, even if it is debatable. There are multiple other ways to create wealth but if one were to benchmark all of these, investing surely offers the best reward to effort ratio. A person who has the nerve to make money off the efforts of others and not owe them anything in return is strangely appealing.
Good investors understand behavioral psychology well, so do free riders. The ability to hold out till everyone else throws in the towel, more often than not it is a battle of nerves and calls for composure to not blink first. A variant of this temperament is what an investor needs to hold on through a stock market correction. There is a politically correct term for free riding (smart work) but I choose not to use it. As Donald Trump says, the compulsion to be politically correct is what holds back most of the developed world from addressing certain ground realities. You may not care much for this particular gentleman but you have to give credit where it is due.
Don’t promoters of companies get most routine operations done by others while they retreat to their bat cave and ponder over bigger things in life? Like how to make the world a better place. Or where to take their family on a vacation next month.
Don’t CEO’s hire secretaries to print out documents, book air tickets, schedule their meetings and maybe file their taxes too? While they get busy dressing up for their next media photo shoot.
Free riders know that it is important to piggyback on the right team, don’t good investors do the same? All well-known investors starting from Warren Buffett to the latest rock star fund manager say it openly that choosing the right business and the right management are the most important decisions. Even if it does not involve a lot of tangible work, it does call for superior judgement which you can never outsource to others. There is no substitute for doing your own thinking and exercising your own judgement.
When you leverage the efforts of other people to get ahead in life, the business world calls you street smart. It does not label you a free rider. The more successful you become, the more you can leverage other people’s efforts without them losing respect for you.
You may not like some aspects of it but that is how the game of investing is played. I did not invent the game; I am just a guy who plays the game well.
