Becoming A Better Alternative Asset Investor

I still remember the first time I heard about the idea of risk-adjusted return. If you’ve read my most recent piece, The house always wins, you’ll understand that my career in investing started with a sports bet. Although I learned the hard lesson that sports betting might not provide the best rate of return, I began to look at other avenues that would provide a steady cash flow on my investments.

Today, I want to uncover some of my tips to help you become a smarter alternative investor….

1 – Invest in great people and teams ahead of “the next great idea.”

It takes a lot more than a great idea to build a great business or make a great investment. In almost every case, some components of the investment thesis will prove correct and some will prove to be wrong. What matters is how the investment team can adapt and overcome. Do they scratch, claw and fight when things go against them, or do they admit defeat and walk away? This is often the difference between an investor who is getting paid back or losing an investment.

2 – Invest with partners that have skin in the game

Think about it. Do you want to invest in a business, idea, or asset when the person or team in charge of executing won’t even put their own money into the deal? Be very wary of that situation. Don’t focus a lot on the amount of money, rather the amount relative to their capacity. If I am backing someone with $100k of capacity to invest, are they willing to put $25k-$50k of their own money in the deal alongside you? This accomplishes 2 things: (i) it proves that they truly believe in the investment and (ii) if things don’t go as planned, they have the drive to fight to salvage as much value as possible.

3 – Don’t invest in ideas or businesses or projects that you don’t understand

This is simple. If you can’t explain the investment to a stranger, then you don’t understand it. It’s easy to get excited by a great investment pitch or the promise of an outsized return on your money. Be inquisitive and diligent and take your time to get all your questions answered. No good investment partner will force you to invest before you are fully comfortable.

4 - Diversify Diversify Diversify

This is an age old principle that largely stemmed from traditional stocks and bond investing, but it applies to almost all forms of investing. It is natural to want to invest in something you know well. I see this a lot with real estate investors. They have every dollar they own in some form of real estate and they are a real agent. In a down market, not only are all your investments impacted but your current income via your day job is as well. If you are going to focus on a single industry, then you diversify with geography, asset type, etc. It’s easy to forget that in a down market, losing 5% when everyone you know loses 20% is pretty good too.