Just like playing golf, investing in public markets is full of paradoxes and to do well at either, you need to often do things that are counter-intuitive. When I look back on my investments over the years, my best ones tended to be ones where had they not worked out, I would have looked like an idiot. Because at the time of the investment, the flaws were obvious and very widely accepted. Most important, this also meant that all the bad news was already baked into the stock price and that anyone who was going to sell had probably already done so. So when I made the investment, I felt very exposed and the last thing I would want to do at that time was to explain to someone that I had made that investment and why. By contrast, my worst investments, would have received wide approbation had I told anyone at the time about them. An example today of an investment where everyone would nod approval (which, again is a generally bad sign) could be exclaiming that you just loaded up on an index fund. Because today, the market is at an all-time high and everyone loves index funds. Indeed, an investment in index funds (or also bonds) are often mentioned as “prudent;” though at this point in time, I consider them pretty risky.
I remember buying Amazon when everyone was saying that it was going bankrupt. I certainly didn’t talk much about that one. I recall buying Facebook after their “botched” IPO occurred and the news was all negative and it was assumed they were being left behind in mobile. Silence. I recall buying Bitcoin, when it had “collapsed” from its first run-up and the news was all about one of the account holders being hacked and that it was all drug money, etc. I certainly didn’t tell anyone about that one and, in fact, I didn’t buy much because I didn’t really understand it. Even today when I explain Bitcoin to people they roll their eyes and say “crazy.” I never bought Tesla, because starting another domestic car company just seemed so far fetched, I couldn’t get there. Whoops. Of course, just because a stock is widely derided doesn’t mean it’s going to rebound or take off and do well. I bought Twitter under the same pretenses and it has been a loser that can’t seem to get going. But I like this tactic and this morning, I’m buying a widely-derided tech stock that is considered “busted” and pretty much f-ed up no matter who you ask, except the users who I talk to who say they use it all the time. Of course, I don’t know if it will work and it may not, but I like the asymmetric profile of the risk where it seems like there is way more upside than downside. I’m not going to mention the name, because I’ll feel like an idiot if it doesn’t work out, and I am well aware that it may not.
As I mention in my book, The Start-Up J Curve, investing in startups has been a similar experience in that my best investments have often been pretty gut-wrenching and not obvious. They are ones I’m embarrassed to explain to friends and family, because if they bomb, I’d look pretty dumb. By contrast, the ones that were “no-brainers” have usually turned out to be struggles, not always, but usually. Investing is a hard business in part because winning habits run counter to natural inclinations. Nobody wants to look like an idiot, but if you are looking for a great investment, you may need to risk it.