No Place for Sensitive Hearts
I.
Billionaire investor and superangel Chris Sacca regrets more on what he passed on than what he “failed” at. He had an opportunity to invest in the early team of DropBox, but Chris wrongly compared it to Google Drive and thought Google would crush it. He didn’t invest.
He also stayed in an Airbnb before it went mainstream and had a similar opportunity, but felt that it was dangerous. “I felt someone would get murdered or raped there,” Chris said.
Of course, that’s probably true; with scale, the sheer number of people using Airbnb (or any other large consumer service) are bound to result in some crimes. The risk of harm distracted him from the potential of the investment.
There are over 2000 ongoing cryptocurrency projects that are listed on Coinmarketcap, and many more that are on the way. It’s impossible to sit down and analyze all of them, let alone talk to their founders if you decide to invest a larger chunk of money.
When you decide on one investment, there’s an opportunity cost because you’re choosing to say “No” to others.
There will inevitably come a time when you come across an investment, decide it’s not worth your money, and then later find out it’s gone on to become the next Airbnb or Dropbox or Facebook.
In those situations, it’s going to sting. You will wallow in regret for a while.
Chris noticed that there was one thing in common with all of his failed decisions/missed calls. In all of them, the negative case dominated the analysis of whether he should invest or not.
One solution to avoid this trap is to do a post-mortem on your decision making. The best you can do is learn from your mistakes and ask yourself the question, “Did you make the wrong decision or the right decision based on your process?” If your process was good, then you just had bad luck; if you find there was something faulty in your process, correct it immediately and move on.
This ongoing process of analysis, reflection and correction should apply to existing investments (since crypto affords that possibility) as well as exited/closed investments. It’s process-based and shouldn’t be deviated from based on whims.
Whatever part of it can be automated (google alerts, scheduled meetups with founders/teams for updates, AMAs, etc..) should be used to minimize time spent and maximize signals.
As Ray Dalio says, “pain plus reflection equals progress.”
Crypto Lesson #1: This isn’t fucking Pokemon, you can’t catch em’ all. Establish process, learn from mistakes and move on.
II.
I was obsessed with Monopoly. I still have several editions of the game — from Euro monopoly that’s all in French and National Parks monopoly (Yosemite is Park Place) and NFL monopoly even though I never watch football.
When I was in university I would organize “Monopoly Night” on Friday nights. I would make popcorn and order beer and pizza. Instead of going to class I would practice playing monopoly online, and would plan my winning moves.
The first time I held Monopoly Night two people showed up and we had a four-hour game and got drunk. I thought it was a lot of fun. After that first game, nobody ever came to Monopoly Night again (except for me).
I started playing Monopoly again recently and realized how relevant it is to thinking about risk and reward.
You can’t play in the game if you run out of cash. I cringe when people put 99% of their assets into digital tokens — it means they have lower protection to risk, and it also means they have less ammunition to buy new investments or take new trades. It also means they’d be broke… right. about. now.
This is particularly useful advice if you are too trigger happy. Sometimes sitting on cash for a while — like, during a bear market (now) is the best strategy.
You also have to think about what properties are best to buy. A losing strategy is to buy one property from each color group and to never have a monopoly; to never be able to build on top of that and to spread yourself thin.
The same applies to crypto. You can benefit by having a Monopoly of knowledge in a certain area. What are all of the insurance or gaming or travel focused blockchain companies? Start there and go deep. Build up your “houses” on those properties, forego the others when it’s tempting.
“Monopoly is the condition of every successful business.” ― Peter Thiel, Zero to One
Crypto Lesson #2: Don’t spread yourself too thin, rather, think about getting a monopoly of knowledge (informational asymmetry) in one area of crypto to give yourself and ‘edge.’
III.
Those who have a basic knowledge/interest in crypto tend to integrate their interest as a really prominent aspect of their identity. At least, this is what one can see on Twitter: “so and so is the Bitcoin guy; while so and so is Ripple; and so and so likes Ethereum.”
So, crypto, for many, is more than just an interest/activity — it’s WHO they are, rather than what they do. It really seems to consume many.
This leads them to an inflexible position where they’re not able to analyze the market rationally and make decisions which counter beliefs that were previously held with conviction. That’s when poor investment decisions are made.
We shouldn’t force our desires onto the market. Rather, we should stay shapeless and be ready to go where the market takes us. Accept what the market is, taking into account that the big wave today could come crashing down tomorrow.
Also, contrary to how Venture Capital works with capital lockup periods, crypto offers (usually) 24/7 liquidity to risk adjust over time. This allows you to be adaptable.
Making an investment decision is not a one shot motion — ongoing due diligence to validate your hypotheses and ensure that there are no holes in your thinking over time is still necessary.
If something smells off, it could be a good time to adapt and exit the investment. HODL’ing is a bad strategy.
Instead of waiting for a big press release to find out something publicly that could have been figured out earlier, you can risk-adjust over time and confirm expectations in stages.