Coined by Harvard professor and economist, Richard Zeckhauser, the term ‘sidecar investments’ is used to describe an investment that is made alongside another person – preferably with someone who possesses a useful secondary skill that will help both parties obtain above average returns. For example this could be knowledge about a certain topic, such as real estate and property development, which helps us to place our trust in the person’s ability to invest towards more smart capital.
Much like a passenger in the sidecar of a motorcycle, the more knowledge that the driver possesses about a useful topic (i.e. riding a motorcycle, or rather, their secondary skills) the more likely the passenger is to trust their ability to make wise decisions. In terms of building smart capital in a city such as Toronto, it is important that you also develop and rely on your ability to judge a person’s character. Rather than blindly choosing to invest with someone you know, or on the next ‘hot-tip’, it is extremely beneficial that you study and determine the level of character and secondary skills that the ‘driver’ of your sidecar investments possesses.
One of the many interesting things about building smart capital by investing in the market is that more knowledge does not always mean bigger returns. The well-versed investor can easily make losses while the inexperienced make gains; and the reason for this is due to the unpredictable nature of the market itself. As Noah Murad, the CEO of Mill Street has said in his second Perspectives piece, “If you are a professional poker player you can still lose to a guy who doesn’t even know how to play.”
What this means in terms of making sidecar investments is that we should rely more so on our judge of character, rather than our knowledge of how the market itself works. Finding a person with useful secondary skills to help build smart capital can be challenging, but it is in this search that we often come across the best performing investments. After all, you will not be able to find superior managers or rare information if you are sticking to the market’s idea of what constitutes a safe investment, and for Noah Murad of Mill Street, looking for superior managers with applicable secondary skills is often a better use of your time than trying to develop your own views on something such as real estate.
What does this mean in terms of choosing an investment advisor? Well, the same logic can be applied. Instead of getting caught up in the appearance or the brand of the company that your potential investment advisor works for, it is far more important that you ask yourself what that person is capable of, and if it is worth trusting their judgement to help you build smart capital. In Toronto for example, finding an investment advisor who possesses secondary skills – and is able to use them within the structure of their company – is of paramount importance in terms of building smart capital. When Noah Murad chooses an investment advisor for himself, or recommends one for a family member, he strongly takes this factor into consideration.
Whether you are looking for a trustworthy investment advisor in Toronto, or are trying to find a reliable person to make high-return sidecar investments with, both options come down to the Mill Street core value of Loyalty to Relationships. The trick is to find that investment advisor, or driver of your sidecar investments, that is worth being loyal towards. While it may appear unusual from outside eyes for you to be investing in something that you know little about, your ability to judge character and your loyalty to that person is what makes these types of sidecar investments worthwhile and less risky than they may seem.
If you would like to learn more about sidecar investments, choosing an investment advisor, or about any other investment topics such as managing risk, stop by the Mill Street & Co Knowledge Base. While there you will find an abundance of information on topics that will help you create smart capital in a city like Toronto, and determine the best investment opportunities to maximize your returns.