Why Earning and Managing Money Are Worlds Apart
Getting rich vs staying rich
We often see successful entrepreneurs who later lose their wealth by gambling it away on the stock market. That might sound strange, but it’s actually logical.
Earning money and managing money are two completely different skills. Building a business to create wealth requires different qualities than wisely investing that wealth to grow it further. While there’s some overlap, each discipline demands a unique approach, which is why excelling in both is rare.
Entrepreneur vs. Investor: What’s the Difference?
Entrepreneurs and investors view opportunities and challenges differently. The key difference lies in how they handle risks and opportunities.
Risk Appetite
The Entrepreneur: Starting a business involves a lot of uncertainty. Entrepreneurs take big risks and have to deal with setbacks, failure, and unexpected situations. Resilience and belief in their vision are crucial.
The Investor: Investing isn’t about taking big risks, but about managing them carefully. An investor seeks ways to protect capital while aiming for reasonable returns.
Control
The Entrepreneur: Entrepreneurs have full control over their businesses. They set strategies, build teams, and actively work toward the success of their ventures. The responsibility rests entirely on them.
The Investor: Investors have little influence over the companies they invest in. They must trust the management and strategy of those companies. Steering things in a different direction is virtually impossible, even if they have a different vision.
Time Horizon
The Entrepreneur: Building a business requires not just a long-term vision but also a constant focus on the short term—tomorrow, next week, and next month. Results often take years to materialize.
The Investor: A successful investor needs to look beyond the short-term noise. They must distinguish between temporary problems and structural challenges and avoid worrying about short-term fluctuations. Those concerns belong to the entrepreneur or managers.
Skill Set
The Entrepreneur: Needs a broad range of skills, such as marketing, product development, finance, and team management.
The Investor: Requires specialized knowledge, such as analyzing balance sheets, valuing companies, and assessing risks.
Why Is It So Hard to Excel at Both?
Entrepreneurs and investors operate from completely different mindsets and skill sets. The rare success of someone like Warren Buffett—who claims that his experience as a businessman makes him a better investor, and vice versa—mainly highlights managing existing businesses, not building them from scratch.
An entrepreneur is actively engaged daily, trying out many things, building on what works, and quickly discarding what doesn’t. It’s a process of trial and error, spotting opportunities, and taking risks.
An investor, on the other hand, aims to avoid falling as much as possible. The entrepreneur’s enthusiasm for spotting opportunities—a strength in business—often works against them as an investor. It can lead to overestimating companies’ valuations.
I have experience with both. I first ran and eventually took over my parents’ multimedia stores. Twelve years later, I launched my own stock market magazine and became primarily an investor. Personally, investing suits me better than entrepreneurship.
The Path to Wealth: Creating vs. Managing
This weekend, I came across a question in an investor forum: “Are there books on how to become rich?” In my opinion, that was the wrong place to ask. Building wealth starts with entrepreneurship.
By creating value with a product or service and scaling it up, you can accumulate wealth. As Charlie Munger says: “The first $100,000 is a b**, but you gotta do it.” Nowadays more than thirty years later, due to inflation, you can safely raise that to $500,000.
Successful investing begins with starting capital, which is usually earned through entrepreneurship, a high-paying job, or other sources (like an inheritance). Without that initial amount, investing isn’t very effective. Even a 100% return on €1,000 only earns you €1,000—which you could earn faster by working extra hours.
Investing then helps protect and grow that wealth. The combination of both—creating and managing wealth—is the key to financial independence. But you don’t begin this journey with investing.
Want to Achieve Financial Independence?
Know Your Strengths: Are you better at creating or managing wealth? Entrepreneurs can have their money managed by experts, while investors can look for opportunities that arise from businesses.
Keep Learning: Both entrepreneurs and investors must continue learning and adapting. As Buffett and Munger emphasize: reading and learning are essential for success.
Maintain Discipline: Follow a long-term strategy. Don’t get distracted by short-term successes or losses. For entrepreneurs, it’s also important to celebrate wins along the way.
Think in Decades: Building wealth takes time. Great successes come to those who think in decades, not months.
Conclusion
Earning money and managing money are two sides of the same coin. Entrepreneurship offers the chance to create value and build wealth. Investing ensures that wealth is protected and grows further. By understanding the differences and focusing on your strengths, you can achieve financial independence.