As a private investor, you need to become your own CEO. Are you up for the job?
The job of a CEO is asset allocation.
You want to employ intelligent capital allocation, yet there are plenty of businesses that allow unintelligent capital allocation.
Warren Buffet’s 1987 letter to shareholders explains, “Profitable companies generate cash that must be deployed.” The lack of skill that many CEOs have at capital allocation is no small matter: After ten years on the job, a CEO whose company annually retains earnings equal to 10% of net worth will have been responsible for the deployment of more than 60% of all the capital at work in the business.”
Once they become CEOs, they face new responsibilities. They now must make capital allocation decisions, a critical job that they may have never tackled and that is not easily mastered.
The point, getting asset allocation right is not easy. Many CEOs fail to do it well. But intelligent asset allocation makes a massive difference over time.
The same principles apply to private investors.
How you allocate your capital, both for revenue earning and expenditure items, makes a big difference. Doing it well needs focus, time and intelligence.
If you have too much capital, making mistakes can still mean you have enough regardless of the outcomes. A few lessons are learnt here. Especially as there are no outside shareholders to hold you to account!
It means you need to learn how to asset allocate well.
It is part of our role to help individuals test their own asset allocation skills to find ways to improve decision-making that generates better outcomes.
Let’s talk.