Investing Lessons From The Super-Rich

Business success aside, most high net worth individuals are also very successful investors. Having created their wealth, these individuals understand the importance of achieving consistently high risk-adjusted returns from their portfolios. Here are five important lessons that retail investors can learn from how the wealthy invest.

Keep an open mind

Ultra HNI’s are not averse to thinking beyond the traditional. While the majority of retail investors stick resolutely with LIC policies and fixed deposits, the scions of industry usually seek out Alpha in the form of distressed assets, alternative investments, structured products, early stage investing and the like. While a lot of these products may be outside the reach of retail investors owing to their high minimum thresholds, the lesson here is to not be averse to thinking outside the box and considering innovative approaches to wealth creation.

Have a trusted Advisor

Despite being well-versed with financial instruments and services, most Ultra HNI’s, in fact, do not self-manage their portfolios. In fact, many of them go as far as to hire professional ‘family office’ managers to look after their wealth full-time. They do, however, demand and seek very high standards of knowledge, research, advice, and technological capabilities from their wealth managers. In fact, they tend to keep their advisors on their toes, conducting meticulous reviews and identifying gaps in their ways of working. 

Don’t over-diversify

While a lot of us follow “spray and pray” strategies to investing, Ultra HNI’s generally maintain clean, crisp and “easy to manage” portfolios. They aim to strike an adequate balance between diversification and concentration, understanding that being all over the place with respect to their investments will likely cancel out any chances of earning superior returns over the risk-free rate. Instead, they concentrate their bets into a relatively smaller number of instruments, after extensive evaluation and consideration, and hang on to them until and unless things change for them at a fundamental level.

Embrace risk without being foolhardy

Ultra HNI’s don’t shy away from risk-taking; neither do they rush into the latest ”in thing” in the investment world without due consideration. Having achieved success in the world of business, most of them do understand the ‘no reward without risk’ theory, and apply it judiciously to their investments as well. They manage risks by maintaining a tight degree of control on their investments, being quick to adapt and reverse their decisions if things change at a fundamental level. They usually do not suffer from the ‘confirmation’ bias and are able to see things clearly for the way they are.

Keep your eyes and ears open

Ultra HNI’s are an exceptionally curious and well-informed group of people. They tend to keep themselves on what’s going on locally and globally, in the political as well as economic arenas. They also dig deep into most things, and aim to unearth facts that most people would rather overlook. As a result, they usually don’t get taken for a ride by unscrupulous investment salespersons, and resultantly end up steering clear of ‘rip-off’ investment products more often than others.