The concept of ROI, return-on-investment, is multifaceted and extends beyond pure numbers. The most successful investors in the world, i.e. Warren Buffet, Ray Dalio, John Paulson, and Paul Tudor Jones, to name a few, have all developed their unique investment strategies with sophisticated risk analysis, tax mitigation techniques, and strategic asset-allocated portfolios - driven by various philosophical approaches.
From the perspective of an investor or entrepreneur - or intrapreneur/executive - ROI is a universal statistic that can be utilized to benchmark progress, compare ability, and measure success across different investments. In a game where the scoreboard is measured with dollar signs, as the saying goes, “There is no such thing as stagnation - you’re either growing or you’re dying.”
A major indicator of success is mindset, which is influenced by perspective. The way an executive perceives opportunities, then capitalizes on them, directly impacts the size and magnitude of their prospective returns.
And while most people measure ROI in terms of financial return, the most successful also perceive and calculate the intangible return that can be achieved, and then further leveraged for compounded growth, when it comes to certain investments. There are many options, but…
The investment into one particular asset has the potential to generate endless returns, both tangible and intangible.
So what is an investment?
An investment is “an asset or item acquired with the goal of generating income or appreciation over time.” When most people think of investments, their first thoughts turn to traditional as well as alternative asset classes.
Here are some examples:
Asset Classes
Traditional:
Stocks: Stocks represent ownership in a company, and can be purchased through a brokerage account or through a mutual fund or exchange-traded fund (ETF).
Bonds: Bonds are debt instruments that are issued by governments or corporations, and can be purchased through a brokerage account or through a bond fund.
Cash and cash equivalents: Cash and cash equivalents include physical cash, as well as short-term investments that are highly liquid and have low risk, such as money market funds and certificates of deposit (CDs).
Real estate: Real estate can include residential or commercial property, as well as land, and can be purchased directly or through real estate investment trusts (REITs) or other investment vehicles.
Commodities: Commodities are physical goods that are traded on commodity markets, such as oil, gold, and agricultural products, and can be purchased through futures contracts or commodity ETFs.
Beyond traditional asset classes, those with higher net worth who are looking for additional, more advanced, vehicles to grow and protect their wealth seek not-so-accessible opportunities called alternative investments.
Alternative:
Private equity: Private equity refers to investments in privately held companies, and can include venture capital, buyouts, and growth equity.
Hedge funds: Hedge funds are alternative investments that use a variety of strategies, such as short selling, leverage, and derivatives, to generate returns and manage risk.
Art and collectibles: Art and collectibles, such as fine art, antiques, and even sports cards, can be considered alternative assets due to their unique characteristics and the fact that they are not as easily traded as traditional assets.
Cryptocurrencies: Cryptocurrencies, such as Bitcoin and Ethereum, are digital currencies that use cryptography for secure financial transactions, and are a relatively new and highly volatile alternative asset.
Luxury goods: Luxury goods, such as designer handbags, watches, and jewelry, can be considered alternative investments due to their perceived value and potential for appreciation.
These are the most commonly thought of investment vehicles due to the fact that they are in large part tangible, both in terms of ownership and value.
A common element of these types of investments is that they are typically acquired via financial capital, or money. The use of mainstream, understood currency makes these vehicles competitive and sought after.
However at the highest levels, there is another form of currency at play which is arguably more powerful than money. You don’t need banking systems to transact it, it cannot be seized or frozen, and it does not have any geographic, political, or cultural barriers.
The currency of the wealthy and influential is called social capital, and it is one of the main currencies that can be used to invest into the asset with the highest potential ROI. The asset is known as your network.
Investing into your network has arguably the greatest upside potential for a variety of reasons.
While ROI typically corresponds with financial return, when measuring the return of value on your network, the term that applies is ROR, or return on relationships.
A very important point here is that while relationships can at times be transactional in nature, the strongest, most powerful relationships - those reaping benefits beyond professional and financial development - are built on trust, loyalty, and respect. These relationships are what form true friendships and partnerships where win-win situations are created and all parties involved prosper more-so than if they were operating individually - the epitome of a rising tide raises all ships.
There are layers, and levels, to how this value is created. Here are some examples of how ROR can put your ROI on steroids:
Access to Opportunities - If deploying capital is your preferred method of generating returns, i.e. making more cash, as mentioned above you are operating in a highly competitive environment. Access to the the right opportunities enhances the likelihood of generating outsized returns. Two industries this is highly relevant in are real estate and private equity where sourcing deal flow before it becomes publicly available or hits the market allows deals to be closed quickly and silently, without provoking bidding wars. Direct access to the people who manage or broker these types of off-market deals can raise your value in the marketplace tremendously.
Access to New Ideas & Perspectives - In a globalized economy powered by technology, speed and efficiency are not just key to your success, they are mandatory. Having the ability to engage in substantive conversations with others who are highly knowledgeable or at the cutting-edge of new trends at macro and micro levels allows you to expedite your learning curve and innovate in your industry in ways your competition simply cannot. These conversations can spark creative ideas and help expand your viewpoint allowing you to identify and develop strategic growth and vision.
Access to Expertise & Advice - One of the most successful startup accelerators in the world is Y Combinator (YC) which has funded over 2,000 companies with combined market values of over $300 billion. Notable alumni are Airbnb, Dropbox, and Reddit. While there are many investment groups who try to emulate YC’s success, one of their key competitive advantages is their strong network of mentors, investors, and guest speakers. The ability to brainstorm, debate, and have your ideas challenged or validated by others with unique experiences and viewpoints outside of your own can be the impetus to sparking a brilliant new idea or identifying how to solve a complex problem. Arguably more important is the ability to prevent yourself from making a costly mistake caused by a blind spot. A short conversation with someone trusted and respected in your network can potentially make or save you millions, potentially billions.
Increased Credibility & Confidence - Having the backing of a strong network can be incredibly powerful, producing positive social and psychological effects. There are a variety of networks, public and private, whose influence can range from local communities to international governments. If you are fortunate to become ingrained in these groups, the benefits can be virtually limitless. A prime example are alumni networks. While many initially think of college alumni networks such as Harvard or Yale, alumni networks also exist at companies around the world such as Goldman Sachs, where many executives transition thereafter to global leadership roles. Business alumni networks exist in virtually every single industry. In many cases, when belonging to these types of networks, your reputation precedes you and doors are opened for you. In other cases you may exude, consciously or subconsciously, increased confidence due to your support and resources. These phenomena can happen at any scale, in any industry, anywhere in the world.
These are just some of the benefits of developing a strong network and social capital.
A hidden element and benefit to investing in your network is compound interest.
When surrounding yourself with ambitious executives, you’ll notice many admirable traits: perseverance, persistence, drive, tenacity, and grit, to name a few. The people who possess these characteristics are the ones who change the world and rise to the highest levels of whichever domains they pursue.
When forging relationships, you may have the opportunity to know, interact, and work with these people directly at different stages in your and their career(s). This in turn enhances the value of your network, enabling you the ability to access new opportunities, ideas, perspectives, expertise, advice and on, and on…
Your network is the asset that increases the value of your other assets. It is your ROR that increases your ROI.
By developing and investing in this asset, you begin operating on a higher level and place yourself in a position to help and provide more value to others in your network, thus accumulating more social capital. It is a never-ending game with limitless upside.
The ability to make a positive impact on the lives of others has benefits far beyond pure monetary gain as well. By providing value and helping others, you create a sense of connection and purpose that builds long-lasting bonds and instills feelings of satisfaction and fulfillment that can be deeply rewarding.
Your network is your net worth. Invest wisely and you’ll achieve everything you want, and more.
Executive Ambition is about gaining and leveraging access, networks, and social capital to put yourself and your network in the most advantageous position to succeed in any endeavors you pursue both professionally and personally.
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“A rising tide raises all ships.”