Many investors often follow the crowd when investing because they haven't conducted enough research. In an exclusive interview with Finance Magnates, family wealth management expert Salvatore Buscemi explained the dangers of following the (uninformed) crowd. Additionally, Buscemi revealed what the super wealthy really think about liquidity, the differences in their value systems, and how that affects their investments.

Salvatore Buscemi is the CEO and Co-Founder of Dandrew Partners and the author of several books on investment, including "Raising Real Money: Real Estate Funds Uncovered" and "Making the Yield: Real Estate Hard Money Lending Uncovered." His latest book, "Investing Legacy: How the .001% Invest," explores the investment biases and other non-quantitative drivers behind the decision-making of the world's wealthiest and most powerful families, and explains the causes of conflict, how to manage it, and the origins of world-class investment opportunities.

Buscemi started his career in investment banking at Goldman Sachs and is a graduate of Fordham University. As he explained, the purpose of the book is to shed light on the non-quantitative drivers that shape the financial destinies of the privileged few. But, what can those of more modest means learn from the behavior of the richest 0.001% of the world's population, a group for which he coined the term "the Decimals"?

“I moved to Miami during the Bitcoin NFT craze, which attracted a lot of money from middle-class investors following the lead of their peers who might be professionals (doctors, chiropractors, lawyers) but are not professional investors,” explained Buscemi.

"Herd Mentality" Approach to Investment

“Just because someone is a lead surgeon and earns more money than their colleagues, it doesn’t mean they automatically know what they are doing,” he added. “In addition, no one can see their trading account, so they have no idea if these individuals are as successful as they claim to be. But, they are perceived to be smarter than everyone else, and others will copy them because they want to look smart too.”

This is indicative of a herd mentality approach to investment that is exacerbated by the unwillingness of male investors to do proper research. “Women tend to do their groundwork and take a longer-term view, whereas many men get their information from Reddit,” Buscemi said. “This was the focus of my book, which has been read mostly by [a] female audience.”

Importance of Networking

So, bearing that in mind, what sort of asset classes should investors be looking at? “If they are qualified, they should want to get into private direct investment and private equity alongside some of the smarter families, which requires networking,” Buscemi stated. “People are reluctant to spend $5,000 to attend a conference, but the real wealth is made from networking and getting access to deals like an insider.”

In my observation, a significant factor is the reluctance of many smaller, middle-class investors to invest in their potential. This investment doesn't refer to purchasing books or frequenting the gym; it primarily points to building robust networks. #CRE https://t.co/pzOpLQFaVi

— Salvatore Buscemi (@SMBuscemi) July 13, 2023

He referred to the head of a wealthy family who has been able to pull in millions of dollars at short notice on previous deals to emphasize his point about the importance of building contacts.

“He is able to do this because he spends more than 200 days a year on the road and has built up a powerful network,” Buscemi mentioned. “Most people don’t have the ability to do this, but they could start by not looking for stock advice on Instagram and instead following professional investors on LinkedIn. It takes a bit of effort, and people don’t like to hear this, but they need to understand the rationale behind these investments and not be afraid to ask questions.”

According to Buscemi, there is no excuse not to get involved in family office groups to really learn what they are doing and build a degree of comfort before you even start to think about attending a conference. As he stated: “It is always good to have friends already there.”

The Dos and Don'ts of Pitching to Family Offices#PrivateEquity #RelationalCapital #CallingTheCapital #CapitalRaisingStrategies #FamilyOfficehttps://t.co/PIB73ZTfc4

— Salvatore Buscemi (@SMBuscemi) October 19, 2023

Capital Markets in the US

Buscemi suggested that the capital markets are coming back and that the US is not only a great place for people to invest but also a great place to start a business and raise money.

“There is also value in investing in industries you understand,” Buscemi pointed out. “So, if you are a medical professional, for example, you might want to look at life sciences. But, make sure you are investing with people whose interests are aligned with yours.”

TV shows like the business reality series’ Dragons’ Den and Shark Tank may give the impression that it is relatively easy to come up with a million-dollar, or even billion-dollar, idea, but smart investors will favor entrepreneurs who have multiple exits behind them.

“We are very open about what we invest into, and the reason why we are successful is that we don’t back first-time founders,” Buscemi added. “If you have a bunch of guys that are small investors, they have no incentive other than to get angry if things go wrong or become apathetic, so I would urge people to do a lot of networking in order to find the best deals.”

This is the first factor he considered when assessing a private investment opportunity, regardless of the industry. “I want to know how many exits this founder has had because, at some point, the business is going to be sold off, merged with another company, or go public, and I want to work with founders who can stay the course,” he said.

Conducting Due Diligence

The next question is to find out who the lead investors are. “You want to see smart money coming in behind the founders,” Buscemi stated. “It gives you comfort when these investors have done this before and have been through a number of economic cycles.”

Navigating Due Diligence in Startup Fundraising#FundraisingTips #DueDiligence #InvestmentStrategies #Startupshttps://t.co/EoETTeTJPr

— Salvatore Buscemi (@SMBuscemi) July 26, 2023

When it comes to conducting due diligence on founders, he suggested a rather interesting approach based on social media research. “We were looking at a company founded by a number of young people and started following them on Facebook and Instagram,” Buscemi explained. “It quickly became clear that their lifestyles were not congruent with first-time founders, for instance, flying first class all over the world. This suggested to me that they had an ego, and you never want someone’s ego to be more important than your money.”

He also recommended conducting background checks to determine if there have been concerns about a founder’s conduct during previous deals, something that many people are reluctant to do. However, it can reveal a lot about the person you may be investing with. When asked about his investment truism, Buscemi uses a sporting analogy: “Bet on the jockey, never the horse.”