By Lori Greymont 

Becoming a better investor comes down to knowledge, and as someone who has been an investor for my entire life, something I’ve realized it’s good to get outside your own bubble from time to time and get other perspectives.

This is how you break out of the “that’s just how we’ve always done it,” mentality and find opportunities to improve that would have otherwise gone unnoticed, leaving you missing out on tremendous potential profits.

So in this article, I’m going to step outside of my regular investing world where I eat and breathe real estate, and wade into the insanely competitive private equity waters to share the perspective of Thomas A. Carver.

This investing giant is a managing partner of Harren Equity Partners, a private equity firm with just under $800 million in assets under management. Some of their recent investing projects include Velosio, Virginia Tile Company, and Alliance Ground International, and the firm’s success has led to philanthropic investment in the Charlottesville Ice Rink, Ice Park Holdings, Music Resource Center, and Martha Jefferson Hospital.

Carver has run Harren Equity Partners since its founding in 2000, and he has a meteoric track record, building nearly a $1 billion dollar business from scratch, which investors at any level can learn an immense amount from, so I’m excited to share his insight in this article.

You need to make and follow a budget

Successful investing is more about consistency than about hitting a few exciting home runs every now and then.

That’s where budgeting comes in because it allows you to set aside a certain amount of money every week or month so you can consistently work towards your financial goals. It also helps to avoid costly mistakes that come with investing larger chunks of money more sporadically.

Carver says a mistake a lot of people make is investing sporadically.

“You need to know what your goals are first, and then work backwards to figure out what you need to allocate and what rate of return you need to in order to achieve those goals. The more consistently you invest, not only will you achieve more compounding growth in general—you’ll also become a more proficient investor so you’ll begin to generate better returns over time. When you combine the two, you’ll accumulate significantly more wealth over your life,” he explains.

His model is different from the typical investor because he primarily buys and sells businesses, rather than stocks, treasury notes, or real estate, but the principle remains the same.

Know where you want to end up, figure out what it costs to get there, and then find and invest in the assets that will produce the necessary ROI to achieve your goals.

“You have to know your numbers. That’s foundational when it comes to investing,” Carver says.

Only invest in what you understand

We’re all great at some things, and may range from average to terrible at others. That’s OK—we can’t be great at everything, but many people make the mistake of trying to do just that.

As a result, they never get as good as they could at their core skills, and they were never going to become great at all the other skills they distracted themselves with anyway.

Carver says this applies to investing as well, and it’s a critical component to consistent profits.

“You can’t be a ‘drive by’ investor, and what I mean by that is you have to really understand whatever you’re investing in, and that requires knowledge on a visceral level. It also requires a deep interest, bordering on passion, because this is exactly what it takes to dig deep enough into an industry to see what others miss—that’s how you spot the opportunities and red flags. You have to love what you’re doing to pour through the mountains of research, annual reports, industry trends, and other data needed to make the best decisions for your goals. If you don’t love it, you just won’t do it,” he explained.

He went on to say, “I have a lot of opportunities coming my way, but I always decline the ones that aren’t in my ‘genius zone’ because that’s where I’m more likely to make mistakes.”

As a result, Carver focuses on private equity—the buying and selling of business, and ignores pretty much every other type of asset. He believes that is one of the keys to his success and encourages others to do the same by choosing one type of investing and going after it with a laser focus.

ROI and risk are directly related, but you need to be strategic

As the old saying goes, “risk equals reward,” but a lot of people interpret that in a dangerous way.

This phrase doesn’t mean riskier investments are inherently better or more profitable—but when people mistakenly believe it does, as many do, it often leads to a financial downfall. The reality is risk is based on your level of knowledge, or more often, a lack of the necessary knowledge.

“Life is a risk versus reward business,” Carver says. “In order to understand the real risk you face in any investment, you need a deep understanding of the asset.” This dovetails into his views on understanding what you’re investing in.

He explains that most people judge risk ineffectively. “Think about it like this—if you went to the roulette wheel in Las Vegas and bet $20,000, would that be riskier than betting $20? Most people would say yes, but mathematically speaking, the risk is exactly the same. The odds are the same. The only difference is what you stand to gain or lose, and that’s relative to your financial situation. This is where something called the coefficient of risk comes into play,” he went on to say.

As investors, we all have a different risk profile. The average American has a fairly low tolerance to risk, and generally speaking, that’s probably right for most because they don’t put in the time and effort to conduct enough research into what they’re investing in. But people like myself, Thomas A. Carver, and other full time investors are willing to put in the time and effort to research the industries we invest in, and as a result, we can handle a level of risk that would strangle the average investor.

“Risk comes down to two things: your understanding of the assets you’re investing in and your confidence in your ability to perform and to recover if you fail—that’s critical because you will fail from time to time. Especially in the beginning.”

Carver shared a story about some early investing risks where he leveraged his entire $25,000 signing bonus from his first M&A job after college and bet on himself by hosting a ticketed party on a luxury yacht. That bet paid off in a big way, with he and each of his friends pocketing over $30,000 in profit by the end of the night.

While the risk was substantial from an outsider’s perspective, he was confident in his ability to produce a profit despite criticism from many, including his own father who insisted that if anything went wrong, he would go bankrupt.

Carver saw it differently since he was already over $200,000 in debt from student loans and didn’t think another $25,000 would make a difference. He did note that had the weather turned out differently that night, he would have lost his investment because they only sold about 25% of the tickets ahead of time, but it was a beautiful night and the rest is history. He went on to host several more events, generating a handsome profit on each one.

“You have to know how you’re going to perform under pressure. Will you step up and make it work or will you choke when you’re backed into a corner? Your answer to that tells you exactly how much risk you should take,” he explains.

Plan for the best but prepare for the worst

A Marine friend of mine shared a saying that I think applies perfectly here.

“No plan survives first contact with the enemy.”

What this means in their world is that once the bullets start flying, literally every part of your plan is subject to change, even though the mission remains the same. This is just as relevant to investing as it is to war.

So you need a plan to reach your financial goals, and backup plans if your original plan goes to hell for whatever reason. This means creating a plan B, C, and probably even D, based on the data you have available.

“Something my father told me when I was younger is, ‘shave with the lights on,’ and what he meant by that was to always be acutely aware of what’s going on around me. That’s something I took to heart then, but it means even more to me today because every bad investment I’ve ever made started off as a great investment,” Carver shared.

He says investors often bury their heads in the sand when an investment starts to go bad, hoping it will turn around, and that this is a fatal mistake.

“If you’re going to fail, fail fast so you can course correct fast. Instead of sitting around hoping things change for the better, you need to either cut your losses and move on, or make the appropriate changes to turn things around. And with some investments, you can’t do anything but take your bruises and hopefully learn something from the experience. I like to say, ‘don’t stub your toe on the same piece of furniture twice,’ and what I mean by that is when you make a mistake, learn from it and use that knowledge to avoid making the same mistake again,” he said.

Don’t base your value on your results

As an entrepreneur and an investor, it’s hard not to feel directly connected to my results, so when I’m crushing it, I feel like I’m on top of the world, but when things go badly, I find that I have to really work on not taking it personally.

Logically, I may know that I’ve done everything right, but emotionally, I sometimes lose a bit of self worth for a little while. This is completely normal, and if you put in the work on yourself, you will be less affected by it and recover more quickly, but it will always be there.

While we all face this to some degree, Carver says we need to treat our investing performance as data that we can learn from.

“Thomas Jefferson is known for saying, ‘Every day is lost in which we do not learn something useful,’ and that really resonates with me. At the end of the day, a bad investment is just that—a bad investment. Nothing more, nothing less. It’s not a reflection of you, your character, or your value as a person. Now, if you choose not to learn from that and you continue to make the same mistakes that led to that loss, that does say something about you,” he explains.

As someone who has faced a few significant losses throughout my own career, I agree with his assessment. While each experience was brutal, I learned something from each one that served me in future opportunities, and either helped me to improve my ROI or identify hidden risks.

He wrapped up saying something I found incredibly profound.

“I’ve been incredibly blessed to have made a lot of money, but I realize that’s not what really matters. What really matters is family and friends, health, freedom, and time.”

Wise words from Thomas A. Carver.

Lori Greymont is a seasoned real estate investor, creator of the hit TV show, Funding Faceoff, and founder of a private mastermind community with the mission to help 5,000 real estate entrepreneurs get their real estate deals done and create true financial freedom.