How to Treat Your Investments Like Private Equity

How to Treat Your Investments Like Private Equity

Treating Your Investments Like Private Equity


Private equity consists of investments in private (non-traded) companies. They are often available through limited partnerships to institutions and high net worth investors. The partnerships require large buy-ins and have significant restrictions. These constraints create a challenge for average investors to participate in private equity investments. But that doesn’t mean we can’t incorporate some of their characteristics to increase our investment returns.

Most investors value both liquidity and real-time information. Both of these are lacking in private equity investments. However, investors can utilize these strategies in their public investments to enhance overall investment return.

Create a Liquidity Constraint


Investments in public companies are mostly liquid. We can buy and sell them at any time. While on the surface, this can be viewed as a positive, the reality is that liquidity may actually cause worse performance. Behavioral economists believe that having some sort of commitment period or locking into an investment for a period of time could be beneficial for our long-term performance. I see two reasons why this may be the case:

1) If we know we can sell an investment at any time, we may not thoroughly consider our buy decision. Most investors buy because they expect some security to go higher; there is seldom conviction behind any purchase. If we were to instill a minimum hold time for each security purchased, we would likely put a lot more thought into why we are buying something to begin with. That exercise alone could help us make better investment decisions.

2) If we can’t get out of an investment, it takes knee-jerk trading decisions out of our hands. It prevents us from acting on emotional impulses. And this could be very beneficial for us. Case in point. Let’s assume we were going to buy a security and wanted to treat it as private equity. We restrict ourselves from selling it for 10 years. We purchase the S&P 500 Index (SPY) on Mar 1, 2008. Because of the financial crisis, just one year later the investment would have lost 34%. Things were looking very bleak. If we could have sold, we probably would have. But our hands were tied. And thank goodness. By the time we could sell on Mar 1 2018, our return would have been 207%, and that is not even accounting for dividends. Most investors have long-term goals, the problem is that we get so focused on short-term outcomes that we don’t allow the long term to occur. Creating a self-imposed liquidity constraint may help.

Don’t Look at Prices


Because investments in private equity are private, prices aren’t readily accessible in the marketplace. So when we invest in private equity, we really don’t have any idea of the value at any given point in time. Together with the liquidity constraint, we just go about our day and hope that when the investment fund matures, it will have increased in value. There is little temptation to abandon or second guess private investments on a daily basis because prices are not known.

The stock market is a constant quotation machine. We can know how we are doing relative to yesterday and that plays with our emotions, and ultimately may influence our decisions. The bottom line is that we, as humans, are influenced by change. It is in our nature. So the best antidote to this, is to simply not look. It is your choice to turn on the financial media and look at your portfolio values. Or you can choose to “set it and forget it.” There have been ample studies showing that the best returns at brokerage firms had something in common – those investors had forgotten about the accounts. They set it and literally forgot about it.

Related: With Uncertainty, Process Always Trumps Outcomes

Easier Said Than Done


There may not be an easy way to transform a public equity investments into private ones to protect yourself from yourself. But if your end goal is to make more money, it may be worth your time. I suggest partnering with someone to create and adhere to a durable process. Have some accountability. Just like going to a gym. Some people need a trainer to hold their hand when times are tough and keep them accountable. The same thing can be said in the financial industry.

Jay Mooreland
Behavioral Intelligence
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Jay is a passionate advocate for progress, both personal and professional. He founded The Behavioral Finance Network, an exclusive group of financial professionals, to provide ... Click for full bio

Editors' Choice: Why These Articles Were Great!

Editors' Choice: Why These Articles Were Great!

Here's a a look at what we thought was great this past week. 


Happy Sunday ... and please help each other, and be social with your choices!


Stewart Bell states that it's an Advice Marketing conundrum ... you want leads ... they need advice, so why doesn’t it all just come together? It's seems simple, but it's complicated. Read more in The New Advice Marketing Conundrum.

It's social selling and Timothy Hughes cuts to the chase when talking about it.  He claims when he and other people check you out on social, you need to have done a number of things not to get blocked. You don't have long to make a first impression. Check out In Sales You Need Credibility and Interest in a Nanosecond to learn more.

You’re going to feel things that aren’t planned and aren’t pretty, and it’s unsettling. Kimberly Davis tells us we'd better Start Paying Attention to What Your Insides Are Telling You

One definition of trust is the absence of fear. Your clients and prospects can’t fear you will put your interest before theirs, to sell them something they may not need or want. In Are you Big Time or Small Time? Scott Messer wants to know.

Back in the mists of time, Paul Bates read that, “In order to find the life that is waiting for you, you have to leave the life that you have.” In Where You Are May Not Be Where You Need to Be he gives a bit of wonderful life advice.

Jennifer Goldman says we can talk about great efficient processes until we are blue in the face. However, the most important process that growing firms need is the client off-boarding process. Take a look on how to part with a client in The Crucial Process Most Firms Avoid: Off Boarding Clients. 

Did you know 72% of marketers worldwide said relevant content creation was the most effective SEO tactic? Erika DeBlasi gives us eye-opening statistics in 7 Marketing Stats Every CMO Should Know.

The ability to trick us into believing things today that are NOT true is incredible, so watch out. Chris Skinner explains why Technology Firms Will Be Regulated Like Banks in Future

One of the kindest comments that can come from those we work for is this: “You make what you do look effortless.” Rob Jolles describes The Effort Behind Effortless.

Douglas Heikkinen
Perspective
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IRIS Co-Founder and Producer of Perspective—a personal look at the industry, and notables who share what they’ve learned, regretted, won, lost and what continues ... Click for full bio

Remote Employees: To Be Or Not To Be

Remote Employees: To Be Or Not To Be

With research studies attributing positive results to employees working remotely, you may be wondering why you aren’t assigned such a schedule.


You’re not alone with 80 percent to 90 percent of the U.S. workforce saying they would like to telework at least part-time. And forty percent more U.S. employers offered flexible workplace options than they did five years ago. Still, only 7 percent make it available to most of their employees.

These statistics are good news if you plan on generating a case “to be a remote employee.” And yet wherever there is controversy, there is an equally persuasive argument to the “not to be a remote employee” discourse.

Large companies such a Yahoo, Aetna, and Bank of America are eliminating telecommuting positions from their employment rosters. Recently IBM withdrew a considerable number of remote employees from their ranks—not to mention Apple and Google who chose never to be the mix. In fact, data from the Bureau of Labor Statistics American Time Use Survey shows the number of U.S. workers who worked partially or fully from home dropped to 22 percent in 2016.

Research attributes many of the corporate headaches originate from process breakdowns. Yes, people are part of the problem; however, when you drill down, lack of systems is the real culprit. Three reasons companies point to remote position failures:

  • Poor policy rollout
  • Immaturity of workers
  • Restricts collaborative relationships


Let’s address proactive overcoming tactics to shift corporate attitudes:

  • Environment Commitment:
    • Workspace: Create a designated office in your home to produce a productive environment for yourself. It should be a quiet, interruption-free space.
    • Desk-or-not-to-Desk: What is best for you? Some prefer stand-up workspaces; others favor sitting at a regular office desk; while still others aren’t keen on a desk at all. Choose what will have you feeling comfortable and productive.
  • Accountability Commitment:
    • Production: Initiate dialogue around the expectations your company has of a remote employee with explicit descriptions connected to each. Then, record it, so you, your boss, and human resources have a copy. And update it regularly as assignments are modified or added.
    • Accessibility: Managers typically lead through proximity check-ins. It’s your responsibility to stay connected, so your boss never questions your allegiance and contribution. Be proactive too much is never too much!
  • Relationship Commitment:
    • Success is always about relationships—it’s even more imperative when you’re working remotely. Staying out of the office isn’t entirely an option. How often do you intend to drop-in to be considered emotionally—not merely on paper—a team member?
    • Make video conferencing your friend. Building trust and connection with employees is essential to your continued success. It has to be a priority on your calendar. How frequently with whom?


Related: Why Curiosity is Such a Magical Trait for Charging up a Career

The bottom line is you’re accountable for becoming a boon to your business. And the success process begins as you think through how you, as a remote employee, will benefit your company—not just your lifestyle. Intentionally plan what systems you need to put in place that will lead to advantages for your company as well yourself. And then connect, connect, connect at all levels of the organization to garner a “can’t do without” status.

Nancy Fredericks
Leadership
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Nancy Fredericks is a preeminent Business Executive Strategist, Author and Thought Leader. Corporations like Johnson & Johnson, PepsiCo, Allergan and Transamerica hav ... Click for full bio

Have You Enabled Your People to Think and Act in the Interests of the Client?

Have You Enabled Your People to Think and Act in the Interests of the Client?

I first started writing my blog six years ago. Since that time, I have crafted hundreds of articles – producing them, almost religiously, on a weekly basis. Regularly, I am asked how I generate the ideas behind the articles – ‘do I have a plan and schedule for the year?’. No – is the simple answer. When customer experience is your passion; your vocation; and you have a desire to share thought, knowledge and opinion; then identifying suitable topics to write about is not particularly challenging. Every day, every week, every month, every year, we are all subjected to experiences that others can learn from – some good…. some not so good.

In the last few weeks, my military precision article creation has stumbled somewhat. Although many of my posts are created during rather unsociable hours (typically at 4am in the morning or 11pm at night!!), my work schedule has been so crazy, I have not been able to find a minute to put ‘finger to keyboard’ (so to speak). I do not expect a sympathetic reaction to this statement – I just want to make it clear that my unusual silence has not meant that my brain has failed to be stimulated throughout this period of blogging abstinence!!

Travelling as far and wide as I do, I consider myself extremely fortunate to witness first hand, customer experience in different cultural environments. Two weeks ago, I visited the wonderful country of Kenya for the third time. I have always found Kenya to be so welcoming and vibrant – even if the traffic is not quite so kind to the human soul! Whilst consumers are subjected to experiences that fail to meet their needs and expectations as often as many other parts of the world, my observation in Kenya is that often, when the functional and accessible components of the experience are lacking, the ability of Kenyans to leave you remembering the experience as a result of the way they made you FEEL, is particularly strong.

The EMOTIONAL component of all experiences is, in my opinion, the most important component of them all.


The way an experience makes a customer FEEL is what they are most likely to remember about their interaction with an organisation. As I am often heard saying – customers will remember the very good; the very bad; or nothing at all. What customers remember about their experiences – they way they are made to feel – is all down to the way employees interact with them. It is not products and services that have the greatest effect on the way a customer feels – it is your own people – the way your employees make them feel.

As a result, if any organisation has a desire to deliver consistently customer centric experiences that met, and sometimes exceed, expectation, it is critical they enable their people to ‘THINK and ACT’ in the interests of the customer – far easier to say than do. It does not matter where we live on this small planet, most corporate cultures have been built on the principle of ‘command and control’ – sometimes consciously, sometimes not. Far too often, employees do not think and act in the interests of the customer – not because they do not want to – but because they are not able to (or perceive themselves not to be able to). Empowerment is a word that either excites or scares business leaders. The definition of the word empowerment – ‘authority or power given to someone to do something’ – does not align to the legacy of command and control cultures. If you do not empower employees, then they will simply exist to do exactly what they are told to do – whether it is in the interests of the customer or not.

Failure to enable your people to think, will have consequences – which brings me back to my recent trip to Kenya. I stayed with a colleague of mine in a five star hotel in Nairobi. Although a little tired, the hotel was clean, the service was friendly and the facilities up to scratch. The end to end experience was not one that I would describe as ‘memorable’ – it met my functional needs without doing anything to trigger an emotional memory for either positive or negative reasons. That is until the very last day….

With our flight departing at 23:25 at night, we had a day to kill before travelling to the airport. We asked reception if we could checkout later than the standard 11:00 time. ‘I’ll have to find out from my manager’, was the response. This is an immediate indication of a lack of empowerment. Why could a decision like that, to what must be a relatively common request, not be made by the employee manning the reception desk? On her return, we were advised that we could check out late….. but at a cost. Having stayed in the hotel for three nights, this surprised me – most hotels will extend checkout at no additional cost. Whilst this disappointed me, it was not significant enough to etch itself into my memory banks. What the experience did consciously bring to my attention though, was the indication of a lack of ‘thinking and acting’ in the interests if customers.

We decided to have a meal in one of the hotel restaurants before departing for the airport. We were not to know that this simple meal would turn into a classic example of the failure to empower employees. We were served by a very friendly man – smiley and welcoming. I ordered chicken, my colleague ordered a T-Bone steak – we were extremely hungry and very much looking forward to the meal. The food arrived – beautifully presented and smelling amazing! I really enjoyed my chicken – my colleague on the other hand, was not having as good a time devouring his T-bone steak.

Mid way through the meal, our waiter arrived, asking how we were getting on. My colleague expressed his dislike of the steak for the first time – but also told the waiter not to worry – he would continue eating it. A few minutes later he changed his mind – he decided that the steak was not good enough to eat and resigned himself to eating his accompanying salad and fries. As he was doing so, a different member of staff arrived at our table. ‘I understand you do not like your steak’, she said. ‘Would you like another one?’. My colleague thanked her for her concern, but repeated he did not want another steak – he would make do with his salad and fries. She asked my colleague if there was anything she could do – he intimated that she might like to deduct the meal from our bill. This seem to fluster her. ‘I’ll have to go and speak to my manager’, was the response.

A few minutes later, the chef arrived at the table – I kid you not! ‘Can I make you another steak?’, was his question. Although we were admiring their tenacity in wanting to address the situation, they were now starting to get a little annoying. My colleague repeated the same line – no – he would make do with his salad and fries. Again, seeming rather confused and a little flustered, the chef departed. A few minutes later, our second waiter returned to the table. ‘My manager has given me permission to deduct 10% from your bill’, she said. It was not particularly clear if she meant 10% off the whole bill or 10% off food (although it transpired to be the latter), yet by now we were almost beyond the point of caring. We just wanted them to leave us alone!!

Amazingly, a few minutes later, our second waiter turned up at the table with another colleague – they wanted to apologise again for the quality of the steak. As a token of how sincere their apology was, they wanted to give each of us a gift – a hand made wooden business card holder. Very random – but very sweet….

… and totally unnecessary. The whole t-bonegate scenario played itself out over a 45 minute period. During that time, multiple employees were involved in multiple interactions with each other and the customer to try and address a problem. The result was flustered employees and two bemused/ irritated customers. Whilst the employees were doing their very best – and were polite at all times, all they succeeded in doing was making a small problem a whole lot worse. The thing is, throughout t-bonegate, none of the employees was THINKING and ACTING in our interests. If they were, all they needed to have done when the problem was mentioned for the first time is as follows:

‘I am so sorry to hear that sir. Please accept my sincere apologies. If you are sure you do not want anything else, I will deduct the steak from your bill. Please allow me to get a you a drink on the house’.

Related: The Customer Conniption! Identifying the ‘Final Straw’ Moment

Done. No stress, no hassle – and a satisfied customer who will probably talk about how well the situation was dealt with. But that did not happen – because these employees, whilst lovely people, are NOT able to think and act in the interests of the customer. Sadly, my overriding memory of the stay at this hotel in Nairobi will be a completely unnecessary incident. I will not remember it because of the attitude or capability of employees – I will remember it because of the inability of those employees to do what they think is right.

So ask yourself the question – has your organisation enabled its employees to think and act in the interests of the customer? If there is a real risk that your customers will remember you for the wrong reasons, now is the time to start your cultural transformation.

My new book, ‘Customer What? The honest and practical guide to customer experience has finally been published. Buy it now on Amazon.co.uk or Amazon.com. If Amazon do not deliver to your part of the world, please email me at ian@ijgolding.com

Ian Golding
Client Experience
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Ian Golding is a Certified Customer Experience Professional. A highly influential freelance CX consultant, Ian advises leading companies on CX strategy, measurement, improveme ... Click for full bio