Magic Johnson: Investment Advisor

When Magic Johnson retired from the NBA, he was faced with a choice that many successful retiring athletes face, “What do I with this money and how do I make it last?” The common response most retiring athletes have is to use their existing social network and go to an ‘expert’ within that network. It is not just athletes that do this either. Inheritors or anyone who comes into a wad of cash either from the lottery or a business sale faces this difficult question. The answer for most is usually found in a cousin, uncle, or best friend from school who happens to be in the investment industry or appears to be a successful investor. (nice car, slacks, degree etc..)

Why do most folks take this route? I believe it is because it is the path of least resistance. You will get a nod and an approval for bringing your cash to a bank, investment manager, or buddy pitching a deal, plus you get to abdicate responsibility and are forced to learn nothing. You can simply say, “I have my money with so so and they are doing thus and such.” Sadly, this approach generally produces disastrous results. To see evidence of this I recommend watching ESPN’s 30 for 30 “Broke” or review the data from lottery winners and inheritors and watch what happens when someone receives money without the proper financial acumen to manage it.

Back to Magic. He took the road less traveled. As British educator Charlotte Mason once said, “All education is self-education.” She was right on. You have to do your own mind work. No outsourcing. To be successful in investing and in your personal finances you must learn how to do it yourself. Only then will you be able to partner with the right advisor or self-manage. Magic did both and he was always the one cutting the checks and sitting at the table. While a player for the Lakers, he cold called everyone that sat on the floor at the Lakers games to ask them for business advice. That is someone who is serious about investing in their education and not outsourcing. Notice he didn't call them to give them money, he called to learn from them.

Magic went on to invest in what he understood and what he knew. Few have the humility and wisdom to do that. He placed movie theaters in locations that competitors had written off and he partnered with strong operators. He placed Starbucks stores in locations others had written off, but that he knew well, and it paid off. He bought real estate in locations that others had written off, but that he knew well, and it paid off. You see the pattern. Magic did the work. He didn’t outsource the work and he invested in his education along the way.

What’s the takeaway here? Most people won’t open all the businesses Magic did, (maybe you will!) but they can follow his example by understanding what they are investing in and knowing how they are getting paid. Most folks do not understand what they are investing in or how they are paying for the investment advice they receive.

When athletes come to Magic to seek his advice, he usually discovers a friend or relative is at the center of that athletes financial matters. When he suggests the athlete manage the process themselves, invest in their education, and partner with first class operators, few follow the advice. As he said in a Fortune interview:

"You gotta get somebody who knows business who can teach you and help you, and that's what I did." - Magic Johnson

Education comes first when I work with a client. I know they must learn about personal finances themselves or my advice won’t be worth a lot. If you don’t have the proper investment knowledge, everyone wearing a tie will look and sound the same to you when they make their pitch. Take the long road and invest in yourself so that you can invest for yourself.

I start that process by recommending my clients read one book. John Bogle’s, The Little Book of Common Sense Investing. It is a great start to taking the reins of your financial future. Or said another way, it is a great way to get out of the carriage and onto the horse. Carriage rides are expensive.