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Family Inc. by Douglas P. McCormick

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CHAPTER 7

Your Financial Assets Serve Many Functions in Your Family Business

There is a broad misconception that asset management is the same thing as investing. In fact, these are two distinct activities requiring different skills. I would argue that anyone reading this book has the ability to be a good asset manager, but very few will be good investors.

Asset management encompasses the Family CFO’s ability to effectively manage all the family’s assets to meet the family’s needs. It includes responsibilities like ensuring you have saved for a rainy day or an unexpected event, effectively purchasing and financing the goods your family requires, managing your career, and planning for retirement. Investing is a much narrower endeavor: buying assets like stocks and bonds to generate a profit.

My father is a classic case in point—he has been a great family asset manager and a pretty mediocre investor. Dad effectively managed his career, managed the family assets to ensure our needs were met, and effectively planned for retirement. However, when it came to investments, he couldn’t avoid the temptations of active management. Dad just loved the process of investing and as a result was a willing buyer for anyone who could pitch the merits of an investment opportunity. Stan, Dad’s broker, had lots of “good ideas” complemented by whatever Dad read in Fortune, Forbes, or the Wall Street Journal that week and, of course, whatever Warren Buffett said was a good investment. My father will ...

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