Overview – Going Beyond Conventional Investment Thinking
There is little debate that investing is a very analytical, logical, and quantitative activity.
Investment-related activities involve plenty of reading, critical thinking, and number crunching. As a result, many investors take a methodical approach to their work, follow established ways of doing certain things, and solve problems by understanding what was done in the past to deal with them.
While this methodical, logical, and precedent-based approach to investing has proven to be and continues to be effective, it is by no means bulletproof.
Every day the investing landscape changes: new types of investment instruments, changing economic conditions, major societal shifts, and new ways of doing business are just some of them.
Because of this relentless change, investors will inevitably face new problems and challenges they may have never seen before. To further complicate matters, these new problems and challenges may not be easily solved through traditional means.
So how can they be addressed? By learning to think outside the box, or in other words, by being creative.
What is “Creativity”?
When you hear the word “creative”, what comes to mind?
Many people tend to associate “creativity” with artistic endeavours such as painting, music, poetry, etc. Indeed, the arts are one of the fields where people can express creative thought.
Others think of “creativity” as someone coming up with a ground-breaking new idea. Good ideas are hard to generate, but revolutionary ideas are exponentially harder to come up with. Scientific laws such as Newton’s Law of Universal Gravitation or Einstein’s theories of Relativity could fall under this classification.
Although the previous examples of creativity are valid, there is another, seemingly overlooked, form of creativity.
A creative person doesn’t always have to be someone who’s highly skilled in artistic endeavours or comes up with revolutionary new ideas but can instead be someone who takes pre-existing ideas and re-arranges them in new, original ways.
This concept of taking old ideas and re-connecting them in novel ways was the definition of creativity that the late Steve Jobs used. Jobs once said:
“Creativity is just connecting things. When you ask creative people how they did something, they feel a little guilty because they didn’t really do it, they just saw something. It seemed obvious to them after a while.”
In more concrete terms, this type of person is known as an idea broker. Idea brokers are creative not because they are the ones who come up with the most original ideas, but rather because they are skilled in taking seemingly ordinary, old ideas and presenting them in new and exciting ways.
The iPhone was not the first smartphone, Google was not the first search engine, and Windows was not the first computer operating system. However, all of these things are widely regarded as creative because they took pre-existing ideas/concepts and connected them in new ways.
Despite these various definitions, at its core creativity is thinking about or doing things differently in ways others may not have previously considered.
Why Investors Will Need to Get Creative
In the introduction, we briefly talked about how investors have traditionally followed a logical, methodical approach when it comes to their work. However, given the rapid changes that go on around them, this traditional approach may not always be as effective.
This doesn’t mean the logical, methodical, precedent-based approach to investing is obsolete. It still serves countless investors very well and will continue to do so far into the future. Rather, this approach has its limitations, and investors who adhere to it too rigidly without ever trying something new may find themselves struggling to solve certain problems.
As new challenges arise, investors will also need to come up with new ways to address them. One way to do that is by taking new approaches others may not have considered before, or combining traditional approaches in new ways.
In other words, to solve these new, unexpected problems will require investors to get creative with how they do things.
Now, this may sound like creativity in investing and the logical, methodical side of it are mutually exclusive, but they aren’t. The argument can be made that these two sides of investing work best when used concurrently.
Logic without creativity may be too narrow in scope, but creativity that isn’t rooted in sound logic is just wishful thinking.
Investing always has been, and will continue to be, highly analytical and logical, but this will not always suffice when presented with novel problems, which is why investors will also need to know how to think outside the box when needed.
What Does Creativity in Investing Look Like?
Now that we know what creativity is, and why investors will need to use it in their work, what exactly does creativity in investing look like?
Creativity in investing can take on all sorts of forms, from very basic applications to highly complex ones. Theoretically, there’s no limit on how creative an investor can be. Let’s go over some examples.
Investors are always searching for high-quality information to make decisions or to perform analysis. Many times, investors turn to conventional sources such as annual/quarterly reports, analyst reports, news articles, and industry handbooks to find what they’re looking for, and many times these are sufficient.
However, many investors underestimate the power of their social networks, both personal and professional, when it comes to getting information, especially information that may be hard for the general public to get their hands on.
Going through an industry handbook explaining the ins and outs of an industry is helpful, but talking to one of your contacts, or having a contact introduce you to someone, who has several years of experience in the industry will reveal all sorts of information normal investors would otherwise find extremely difficult to get.
Virtually all investors are on a constant journey of finding new investments they can add to their portfolios. Intelligent investors understand that not only must these prospects offer satisfactory returns, but the risk they come with should also be manageable.
To this end, investors dutifully search the investment landscape to discover these prospects. After some time, however, they run into a problem: there are no more prospects left that fit their criteria either because they’ve already been acquired or, after performing analysis on them, weren’t a good fit.
What, then, is an investor’s next move? One overlooked option is to extend their investment horizons, or in other words, start investing in other countries.
Just because the domestic market an investor operates in no longer has any suitable opportunities doesn’t mean there aren’t any elsewhere. In addition to more opportunities, international markets can also help insulate investors against the vicissitudes of their domestic market, serving as another form of risk management.
With the rise of relatively cheap online brokers with access to international markets, this notion of expanding your horizons isn’t as farfetched as it seems.
So, regardless of how investors choose to go about applying it, the idea remains the same: creativity in investing is all about solving challenges in ways others may not have previously considered or thought were not possible.
Creativity in Investing vs. Doing Something Questionable
Learning to successfully use creativity in investing can help investors solve all sorts of problems that otherwise cannot be solved through conventional means alone. However, there’s a fine line between coming up with creative solutions and doing something that can have serious consequences.
Some investors have very impressive social circles, and if used correctly they can end up interacting with some very powerful people, such as people who work in senior management who could potentially share some non-public information.
Getting in-depth insights about a company or industry from a senior executive is invaluable, but being privy to certain non-public (i.e., insider) information could present a potential legal dilemma, especially if that insider information could lead to a very lucrative investment opportunity.
In addition to going overseas to find more investment opportunities, some investors also turn to overseas solutions to help lower their tax burden.
Investors moving offshore to help lower their tax bill are well within the confines of the law, and investors with an abundance of means can hire tax experts to ensure their international tax strategy is legally compliant.
However, some investors may use offshore methods to come up with “creative” ways to lower their tax bill without being subject to the watchful eye of the law. Investors who get caught performing such blatant tax evasion will certainly regret getting creative with their international tax strategy.
So, while creativity in investing certainly has its place, investors need to understand that it has its limits, and going past those limits could end up landing them in some very hot water.
Wrapping Up
There is little debate that investing is a highly logical, analytical, and methodical endeavour. While many investors have no problem being methodical with their work and sticking to well-established boundaries, there may be times when being too rigid will work against them.
New, unexpected investment-related problems can’t always be solved by referring to what was done before. By applying creativity in investing, investors can find the new, novel solutions they need.
Getting creative in investing may sound like an arduous task, but it doesn’t have to be. Creative solutions in investing can range from very simple to highly complex – investors are free to decide how simple, or complex, they want to be.
While creativity in investing can help investors solve unconventional challenges, there’s a fine line they must walk between being creative and pushing the boundaries of what’s legally/morally permissible.
