Issue 5: Uncommon Investments: Think like LeBron James

Issue 5: Uncommon Investments: Think like LeBron James
February 10, 2020

Three years ago my wife Synthia did something I would have never anticipated.

In 2017, she officially became a sports fan-specifically of the Utah Jazz. Since that season, Synthia has missed only a handful of home games. The experience has officially become our weekly date night during basketball season. Most games, she cheers and coaches from the stands. However, when the Houston Rockets come into town, she takes it to another level. Without getting into the details, James Harden and Russel Westbrook usually get a mouthful of colorful language from Synthia Donohoe.

A few months ago, I could see her "dark side" emerging when the Jazz were playing the LA Lakers. Then my wife and I noticed something happening on the court that gave us a different perspective.

When a shot, dunk, or steal was made, LeBron James jumped off the bench in celebration. But when a shot was missed, he did the exact same thing, encouraging the attempt. The way he engaged with refs, media, and the Jazz staff and players was noticeably respectful. Towards the end of the fourth quarter, even though the game was in full swing, he had half of the arena's attention when he motioned for kids to come courtside. He signed pairs of shoes and other Lakers' gear for them.

LeBron James is a great basketball player and has taken that greatness to the business world. He is mentored by admirable people: Warren Buffett and Bill Gates, to name a few. As you might guess, it's not to get the stock tip of the week.

It's to gain their greatness, seeing the world the way they do.

Warren Buffett told LeBron to avoid get-rich-quick deals and to invest in what he knows, to leverage his unique strengths and attributes into the business world. This simple insight isn't relevant to just LeBron or other celebrities; it applies to everyone.

Traits to leverage for successful investment:

  • Core competencies
  • Talents
  • Strengths
  • Professional training
  • Experience
  • Credentials
  • Relationships
  • Business contacts
  • Business opportunities
  • Your reputation

Here is one of many examples of how Lebron leveraged his strengths and attributes:

Back in 2008, LeBron and Beats Electronics cofounder Jimmy Iovine met with their financial adviser to discuss a documentary (yes, they had the same financial guy). During that time, Jimmy was working on developing Beats headphones with Dr. Dre. LeBron was a big fan of Dr. Dre and had been listening to his music for the better part of his life. After their meeting, Jimmy sent LeBron a prototype of the new headphones. LeBron requested more pairs for his whole basketball team, and a brand was born.

What followed was a partnership between three music and sports icons, an eventual buyout by Apple, and a reported $30 million in equity for LeBron.

Talk about capitalizing on your relationships, business contacts, and reputation!

What's Your Investment Personality?

Successful investing isn't delegating your financial future to someone else. It is your responsibility. It comes from knowing yourself, knowing what kind of investor you are, gaining sufficient knowledge of the underlying investment, and most importantly, knowing how to use leverage.

Delegation is taking something you're responsible for and giving it to someone else. You delegate on the basis of hope that it will actually get done and get done right.

Leverage is working with another individual to produce the intended result.

Personality assessments are a great way to discover your investment personality. They can provide insight into how you get results, what your strengths are, and the way you work best with others, among other things.

I recommend using at least two of these highly regarded assessments:

If you're a visionary and quick to make decisions, consider investments that require rapid decision making upfront but might be harder to liquidate, so you can't shift gears on a whim. Real estate is a good example. If you're factual, patient, and like to carefully examine data, investments that require technical analysis with more liquidity might be better suited for you.

Investments that align with your personality tend to work well, provided you do your due diligence.

Investing is a Team Sport

Who is on your team? Who do you leverage to optimize your investment results? Who will be your Warren Buffett, Bill Gates, or Jimmy Iovine? Learn from the best so you can become an expert at your investment strategy. Here are the five questions you should always ask your team:

  • How do you price out risk vs. return?
  • How do you do your due diligence?
  • How do you protect your downside?
  • What are your red flags when considering an investment?
  • What is a must-have variable when making an investment decision?

It's not what your team did; look for how and why they did it.

Opportunity = Anticipating the Future

Society is rapidly evolving as money gets passed on from Baby Boomers to their heirs. With this evolution comes opportunities to take advantage of new investments. It also means current companies and financial strategies are being replaced. In fact, the S&P 500 currently contains only 60 of the original 500 members. The average tenure of companies on the S&P 500 is also decreasing-by 2027 experts believe the average tenure of a company on the index will only be 12 years, compared to 33 years in 1964.

Common investments are unlikely to provide exceptional returns. What was once beneficial to the consumer is now beneficial to financial advisors and the businesses whose stock is purchased and held. In my experience, the more commonplace an investment is, the smaller the reward and the higher the risk.

Take mutual funds as an example: Think about how much control you have over the hundreds of stocks that make up your mutual funds. Do you even know what they all are? When you buy a mutual fund you are delegating the responsibility to make decisions to an asset manager. Even if you make a profit, your portfolio still might not be sufficient to achieve your objectives. Yet, this is the current investment vehicle of most Americans as they continue to rely on a 401(k) or IRA-full of mutual funds-for financial security, believing that because they're common investments, they must be good.

Mutual funds weren't always common investments though. At one point they were uncommon, the result of entrepreneurship connecting with a demand in the market for more diversification. All uncommon investments are the result of entrepreneurship. Uncommon investments are simply investments that haven't become mainstream yet. Getting in early comes with the benefit of having both control and bigger potential for gains than if you wait for the idea to be adopted by many.

Uncommon Investments Favor Early Adopters

A few years ago, I had the opportunity to have dinner with Tim Ferriss, author of the 4-Hour Workweek and a handful of other New York Times bestsellers. The dinner was literally a 4-hour dinner. I learned how Tim invested: by anticipating trends, then interviewing guests, which allowed him to naturally form relationships that led to opportunities to participate in various investments. Needless to say, Tim leveraged his strengths and made out very well.

When running financial models, the variable we tend to focus on the least is us as the investor. Yet we are the deciding factor between successful and unsuccessful outcomes: our mindset, education, and due diligence are the backbone that determines whether an investment is good or bad.

Early on I made bad investments, one of them being in an oil and gas operation. If I had done my due diligence I would have easily seen where the holes were. I didn't have the experience or a good mentor. If I were to compare that investment to a similar investment from another provider, it would have saved me. Looking at 2-3 providers, regardless of the industry, is a great way to help mitigate risk. Now, speaking to other investors and their experiences is a must for me.

Uncommon investments provide contrast between the risks and benefits of what is common and the risks and benefits of opting for a less popular strategy. These types of investments naturally bring out our inner skeptic. They make us ask different questions, ask more questions, and require a higher level of analyzing. They put the investor in the driver's seat.

The Wealth Maximization Account™ & Investing

As far as real estate goes, one of the first investments I made was based on helping a friend (bad idea). I bought a home of a friend of mine who was about to default on his loan. It had equity and needed fixing up, which would add to the return on my investment. But I didn't do my due diligence in terms of the structural state of the house, necessary renovations, and the amount of resale value I needed after commissions, renovations, and taxes. To make matters worse, this all happened mid-2008, right as the financial crisis hit. I had to evict my friend, put more money into the house to break even, and do most of the renovations-talk about lost opportunity cost!

This experience, and those I heard about by meeting with clients over the last 13 years, led me to create the Hierarchy of Wealth. I made the concept for myself, first and foremost, to see where my investment opportunities would fit. It gave me simple parameters and guidelines to follow. Even with the bad investment in my friend's house, if I had the liquidity of a Wealth Maximization Account back then, I could have taken a monetary loss instead of losing countless hours of my time completing all the renovations the house needed. That time is lost opportunity cost I could have spent in more productive areas.

A Wealth Maximization Account is an asset that can help you become an investor.

Because of the policy loan provision of a Wealth Maximization Account, you have the freedom to act on an uncommon investment when it comes your way. Additionally, you're continuing to earn interest on your cash value and enjoying tax advantages, all without the need for creditor approval. You can enter the world of investing on your own terms, even deciding how long you need to pay back your policy loan.

It's one of the most versatile financial products you can have. Whether you're looking for growth in the early years of your investment life cycle, or wanting to leverage it for use in the income stage of retirement, it's built to compliment your existing financial portfolio.

In addition to having a properly structured whole life policy as part of a Wealth Maximization Account, the following four items can help you be ready for new investment opportunities:

  1. Go to conferences to build your network. The two best investments I've made are building the Paradigm Life business and my own personal development. Both of these achievements are the direct result of creating relationships with people I met at business and investment conferences. Their knowledge is invaluable to me.
  2. Learn good business principles. All investment, regardless of the asset class or type, is a business. There are common reasons why businesses succeed and why businesses fail. When you analyze the health of the mission, the culture and team, leadership, their financials, and business plan you can identify the questions you should be asking.
  3. Pursue expertise in a specific asset class. My learning has come from mentors, books, online courses, podcasts, conferences, and industry experts. Online networking is also a powerful way to explore opportunities. Do your research and educate yourself. Ask the highest quality questions.
  4. Partner with other investors. Sometimes investing with experienced partners gives you a front row seat to see how they do what they do. Partnering in deals can get your foot in the door and allow you to be an early adopter when new investment opportunities arise.

The world is changing and there are new opportunities on the horizon. As the near future unfolds as a result of the demographic cycle shift, emerging markets come online and the world becomes more connected. Where do you fit in?

The best thing you can do to prepare yourself for the next stage of investing is learning to think like an investor, educating yourself, and utilizing your Wealth Maximization Account so that you're ready to act when a good opportunity comes your way. Will your next $30 million in equity come from an uncommon investment like LeBron's?