How To Profit From The Greatness Of Others
I was recently watching a Warren Buffett interview, and one quote really stuck out:
“The best way to generate an income is to have a useful talent…like helping the sick or writing a new piece of software. Of course, if you’re like me, and have no talents, you can succeed by investing in those who do…”
- Warren Buffett
Ok, maybe Buffett is being a little too modest, but he makes a good point. Talent cannot succeed without resources, so if we don’t have the talent, we can make a really good living by investing in those who can do the most with the cash.
In fact, not being “talented” is one of the things that allows Warren Buffett to be so successful. By acknowledging his lack of expertise, Buffett gives more freedom and autonomy than most investors. He doesn’t try to micromanage his employees; instead, he simply lays out expectations, provides the right incentives, and steps in whenever they need a helping hand. This allows him to invest in far more companies than he otherwise would.
In short, he’s using his time efficiently while making his employees happy. Win-win.
Everyone knows Warren Buffett is a great investor, but there are many others who are a little more under the radar. In 1998, two young men approached a man named Andy Bechtolsheim with a revolutionary internet idea. They were running low on cash, but had a tremendous amount of energy and passion.
Bechtolsheim was a fairly wealthy man who respected technology, and he knew a good idea when he saw one. He immediately wrote them a check for $100,000 to go build their company.
Six years later, Bechtolsheim’s $100,000 investment in Google was worth nearly $1 billion.
Bechtolsheim is a very smart man, but he certainly didn’t have the ability to build Google himself. But he still made a ton of money because he recognized that the founders had this ability, and managed to get a piece of the early action.
Another great example is rapper Curtis Jackson, better known as 50 Cent. Jackson rapidly rose to stardom in the 2000s, but was looking for ways to diversify his income. Through mutual connections, he met with a man named J. Darius Bikoff, who was running a small, but growing healthy beverage company.
Jackson knew little about the healthy beverage industry, but he understood that the market was growing rapidly. He also recognized that Bikoff was an unusually savvy businessman who would do anything to make his company a globally recognized brand. Jackson jumped on the opportunity to invest, and helped endorse the company as part of the deal.
In 2007, Coca-Cola bought Vitamin Water for more than $4 billion. Jackson’s cut? More than $100 million.
Clearly, savvy investing is the best way to grow your wealth over the long-term. The problem is that there are so many investment opportunities to choose from. Here are the three things every investor should consider before signing a check:
You won’t get a good return without good people. It’s that simple. Look for people who understand the business and the target market, and are willing to adapt to new situations. Also look for teams that complement each other well. Do reference checks whenever possible to make sure that people aren’t just pulling the wool over your eyes.
What are they trying to sell, and what makes it different? Why would people buy this? In order to sell, a product must solve a “pain point.” In business, the consumer is always right. Be very concerned about people who invent products without a target customer in mind; chances are that it doesn’t solve a fundamental problem.
How big is the opportunity? What is your upside? There is a good amount of risk with any investment, and to be honest, most investments lose money. That’s why it’s important to understand the upside potential of any business opportunity. If you don’t stand to make a significant return, you have to consider whether it’s worth your time and effort.
Have you ever made an investment? What went right or wrong? Please share in the comments.