The most challenging part about being an experienced investor is uncovering your biases about how an industry or a company should work. In other words, the challenge is to be able to see reality objectively and for what it is and not what you want it to be. I refer to “experienced” investors in particular because experience makes you more susceptible to projecting your previous biases and mental models around how things should be, instead of objectively evaluating how things actually are. (Side note: This is true of life in general. Experience is both a boon and a curse – it allows you to learn from the past, but it also takes away the freshness and novelty of a beginner’s mind.)
For example, building financial models based on how you think the company should work might be the part that trips investors. You project financial models based on what industry benchmarks are, where you think the company can be more efficient, and what your thoughts around growth are. But in the midst of all of this, you may fail to see reality for what it is. You may fail to understand the actual reasons behind a company’s performance and that the growth trajectory may not be the one that you hold in your head. As such, you will end up making poor investment decisions and being intellectually dishonest.
Great investors are able to see reality for what it is. They are able to think and invest in an objective manner.
On the other hand, being an entrepreneur means making the reality you want. It requires a balance of dreaming and being realistic at the same time. Entrepreneurs hold dreams of the reality they want, and then go out there and make that reality come true. So, how do they make this “reality come true”? Ironically enough, creating your own reality requires embracing reality. (Now I’m sure I’ve confused you, so let me explain.)
I’m not saying that successful entrepreneurs are realistic. In fact, some of the greatest entrepreneurs probably think in the most “unrealistic” way (i.e. Steve Jobs). But I do think that they are very objective about what it takes to accomplish their seemingly unrealistic dreams. In other words, they dream unrealistically, but accomplish realistically.
To sum it up, I think the difference between an investor vs. an entrepreneur’s frame of mind may be that one (investor) sees reality whereas the other (entrepreneur) makes reality.
This brings me to the point that the common thread between great investors and entrepreneurs is objectivity. And I believe this translates to all areas of life. One of the keys to greatness lies in training yourself to do everything in an objective manner. Again, it does not mean not killing your craziest dreams and fantasies – it means being realistic about what it takes to achieve those dreams and then going out there and doing it!