Investing in people

People equate success to the highest return on investment. Say you bought a stock at $10 ten years ago which you sold a year ago for $100. Your return on investment is 10X which is extremely good. But if you held on to this stock that is now worth $150 you'd be making 15X. Now, which is a more successful trade? Everyone would say 15X.

But success is all about realizing an expected outcome. If you were looking to make 10X, then you sold your stock at that price, you'd say that was a success. It shouldn't matter if the stock is 50% higher now because your expected outcome has been realized.

Investing is a bet on people. Be it hiring someone to do a task, buying a stock whose company has a capable management, or even marrying someone is a bet with an expected outcome. When you reach your goal, it's a success.

Having spent 15 years on Wall Street, I've bet on many things in my life. When I bought and sold stocks, I bet on company management. Stock prices are merely a reflection of how investors and traders value the company.

I've worked in private equity. Private equity(PE) firms source for companies with great prospects and balance sheets. Although most go down the route of financial engineering, PEs work with the existing management.

My latest venture, fitness, is a bet on the fitness instructor. My goal is to provide them with the tools to successfully run their independent business. If they succeed, then our mutual bet has worked out.

As with everything, some bets are profitable, some aren't. But the most successful bets are made on people who have a vision, a strategy, and an execution plan. Without this, the bet should not be made. But investing in people you don't know is not without gargantuan risk. You are literally putting time, money, and effort into somebody who can lose everything or give something back. The magnitude of the bet depends on aversion to risk.

A Venture Capital investor once told me, "A CEO has 3 functions they have to do right. First, set the vision. Second, provide enough money in the bank, Third, hire the right people to run the company. In the end, the CEO has to make the right bet. Hopefully, it's an educated one - a bet on themselves.