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Investing is a good way to stay in the game after you’ve sold your business. But the transition from business owner to ‘investor' can be jarring if you don’t adjust your expectations.

“When you’re a business owner, you’re still wired to make deals because you like the action,” says David Sowerby, CFA, who has been a business analyst on the Detroit and Michigan economy for 30 years. “But because you’re probably at a more senior age, risk control becomes a greater factor. Most successful business owners are more sensitive to that as they move into investing — and they’re not out there perpetually hunting unicorns. They recognize the probability of capturing one is remote.”

As managing director at Ancora, Sowerby manages portfolios for multiple investment strategies and provides expert insight into the investment environment. Here, he shares his tips for planning your investment strategy after selling your business.

Pause and reflect

Taking a step back won’t be easy for an experienced business owner who is used to calling the shots.

“As a business owner, you control your destiny,” Sowerby says. “If there is a recession and the value of your company drops by 20 or 25 percent, you’re obviously concerned. But you still have your hands on the steering wheel and a long-term perspective about your business.”

Things change when you’re managing a portfolio of investment companies.

“You’ve built this portfolio, but you’re not managing the companies,” he says. “That’s a whole different experience.”

A good first step in a solid investment strategy is to take a moment of pause before you make any big decisions. Don’t feel like you have to jump back in the water immediately,” Sowerby says.

As you get your feet wet, it’s good to remind yourself that the playing field has changed, at least for you.

“It’s a different mindset from being a business owner managing an illiquid investment with a long-term time horizon,” Sowerby says. “When you’re investing, the markets will go up, but they will also go down. When the news is bad and valuations decline, you wonder when it’s going to end. How much deeper is it going to go? You need a different set of disciplines in order to ride the ups and the downs.”

Invest with a plan

One thing you don’t have to worry about if you’ve been a successful business owner is a lack of investment options.

“People will bring you deals,” Sowerby says. “In the circles you operate in, they know you sold your business, you’ve had a liquidity event and now they are going to bring you deals. It’s up to you to figure out your budget.”

Private equity is a popular option for dealmakers who want to stay active.

“Let’s say you sold your business for $20 million and you’ve allocated 10 percent to what we’ll call a private equity bucket,” Sowerby says. “So, you’ve got $2 million. How are you going to size the deals? You don’t want to put it all in one deal. It might be that you’re going to size your allocation for three to five different deals. With your bucket, you know how much you can commit to private equity.”

As always, planning is essential.

“You need some type of game plan,” Sowerby says. “Otherwise, you’re thinking this deal looks good and this deal looks good and so does this one; and before you know it, your 10 percent allocation is up to 20 percent.

“If you think about portfolio structures and things like endowments and foundations that have a very long runway of perpetuity, they are allocating maybe 20 percent to alternative investments and private equity. Your allocation will likely be less than theirs because your time horizon is different. Right-size your allocation for you.”

Seize opportunities

The good news for Southeast Michigan investors is that there should be plenty of opportunities for good outcomes in the near future.

“We are still going to be a cyclical economy,” Sowerby says. “However, the longer-term secular growth potential for Michigan offers some of the best growth rates and business backdrop I’ve known in 30-plus years. That’s positive for business activity and M&A activity. I’m seeing it in the macro business environment as well as what I’m seeing anecdotally company by company. It certainly supports more robust or compelling valuations.”