Betting on the Jockey – Choosing the Right Operator
We’ve all heard the saying, “It’s better to bet on the jockey than to bet on the horse” because a good jockey can make a bad horse run fast, and bad jockey can make a good horse run slow. The same is true when looking at operators in the investment space. In the following article, I’ll discuss some of the most important items to consider when choosing your jockey.
Familiarity
If you’ve been reading all my blogs, you are likely starting to see a trend with this first item. Much like the asset class and the market, familiarity with an operator can be the best way to determine whether you should invest with him/her or not. You can learn a lot by simply watching and observing an operator for any amount of significant time. It’s important to know, like and trust your operator, so choosing one you have familiarity with will allow you to do just that. Referrals are also a great way to borrow a trusted source’s familiarity with an operator, and this is something I have leveraged heavily with many of my investments.
Track Record
The most important item to consider is an operator’s track record. If they have been able to perform at a high level in the past, it is more likely that they will be able to perform at a high level in the future. Of course, past performance does not guarantee future performance, but success quite often leaves clues.
I like to work with operators that have a recent and lengthy history successfully performing the business plan that I plan to invest in. It’s true that many of the skills required for various asset classes are transferrable, but each asset class, market, and business plan have unique challenges that operators can only perfect by working in those situations over a significant amount of time.
If an operator is new to a certain asset class or business plan, it is extremely important to know that they have been successful in other areas. Everyone deserves a chance, but I prefer my operators to get their training on their own dime versus my hard-earned money.
Match Your Investment Goals
Just as the best plumber in town would not be a good choice to give you heart surgery, a growth focused operator will not be able to provide you the cash flow you need to live on. Obviously, it’s important to know what your investment goals are to be able to find the right operator to meet those needs.
If you can check the box on the three items above, you’re likely ready to move forward with your first investment. The last thing you’ll want to do is complete your due diligence on the deal, and we’ll walk through that process at a high level in my next blog.