They know when to say "no" and stand by it.
Have you ever said “no” to an investment opportunity because you weren’t sure how it fit your portfolio? We definitely have. There are plenty of reasons: a lack of organization, insight, or even confidence. The result is always the same: a default decision that ends in a missed opportunity.
Successful private equity firms turn down up to 95% of the deals they come across. In fact, most investors we know hold up their similar rejection rates as badges of accomplishment (echoing Warren Buffet's "No" sentiment).
But what’s the real reason behind this reluctance to say “yes”? Is it due diligence (or the need to believe that caution is the best option)? Perhaps it has something to do with intuition or a gut feeling. Or maybe the biggest reason investors turn down opportunities so often has to do with a lack of information needed to make an informed decision.
What if "no" is just the default - the safest answer? Wouldn't saying it for the wrong reasons mean leaving alpha on the table?
So what steps can investors take to make sure they’re making the right decision for the right reasons? For the family offices we encounter, it all comes down to three main factors:
Rhythm and ritual. If you're a member of YPO, EO or Tiger 21, you're familiar with the rigor applied to meetings and presentations. There's a lot to learn from this: when making decisions about your investments, apply a more disciplined standard using the models of other highly successful groups.
A clear Investment Committee Policy. The rules need to make sense to everyone. An Investment Committee Policy provides a map that clarifies why a particular decision happened. It also gives your people an unemotional template to evaluate the future outcomes of their choices.
Inclusion. To make sure everyone stays involved, use tools that are easy to update, scalable, and easy to consume.