Investing in something you like, have an affinity to, or have some emotional connection can be an added value to your overall investment process, it should not however be the driving force behind your core decisions.
An effective investor knows how to separate or suspend their personal preferences and their emotion from the deal. The fact that you like a particular deal does not mean that there is an opportunity there and that it is a good one. You need to vett and evaluate each deal on its own merits.
At times you may invest in deals or industries or market sectors that you like, yet many of the deals you will not necessarily like or have no particular affinity to, and that is ok, yet they will fit your overall portfolio strategy. Remember, diversification and risk management are key to success.
Here are the recommended practices:
- Make logical and sound business decision base on the overall fit in your based on your portfolio building strategy
- Approach all deals with the same discipline, regardless if you like it or not
- Avoid the “Trendy” type of deals, they have a very short run, if at all.
- If you get too excited, attached, or somewhat emotional about a particular deal, step back and take a fresh look and use your advisory team to balance your perception
- Look for reasoning about why not to invest instead of why to invest, if you filled all of the holes, (the “swiss cheese” approach) then you are good.
I personally may not like MedTech that much or have any particular affinity towards it, yet I have made numerous investments in the space because the industry is “Hot” right now and there are many quality opportunities in that space.