4 ms·

Identifying the winners is more important than identifying the losers. It's the investments you don't make that kill you.

by paul 16y ago

joshu 16y ago
Yeah, but not making the bad bets is a good idea. Big mistakes, so far: - startup has no lead investor - startup is raising too little - generally, not having an investment thesis Curiously, I've been working on taking stock of my angel portfolio as well lately, though it seems gauche to talk dollar numbers.
- kenjackson 16y ago
  Talk dollar numbers... I think I'd be safe in saying, we're all ears. :-) The problem with bad bets is that they take money from your good bets. If Paul's only bets were Heroku and Mint, he would probably have a much larger return.
  - joshu 16y ago
    Ok. I tend to invest $10-$25k. There was one for $50k (which is a loser) and one for $40k (which returned a bit.) The better investments tended to have smaller allocations for me. Hotter deals tended to go on to Series B. I've spent maybe $800k on investments. The unrealized value of the portfolio is approximately $1.6m, most of which is in one company. Since the original investment was only $25k and my first actual investment, if I had just stopped there I would be doing way better. I cannot conclude that I am actually any good at this.
    - wslh 16y ago
      What % of stocks do you take aprox?
      - joshu 16y ago
        The better opportunities tend to have higher valuations. Most things are at $3-4mm pre at the very least (and I tend to pass on lower-end stuff than that.) Divide it out :)
    - kenjackson 16y ago
      That's actually quite good. You and Paul are both ahead of the game, and it seems to be the case that there are quite a few exits. It _seems_ like if you're in there long enough you eventually hit a Groupon, Facebook, Google, or happen to be in during a big boom. At worst you're out $1M. Not bad odds, although I think you and Paul have opportunities that most of us would never see (and rightfully so).
      - joshu 16y ago
        You have to compare the numbers annualized (which is hard to do, since the data isn't in) and then compare that to contemporaneous treasury returns (and maybe the stock market i guess) to get a real sense if it's good or not.
- paul 16y ago
  Yes, avoiding bad investments is definitely good. However, I think people have a natural cognitive bias towards loss-aversion, which means that we need to be careful that we aren't focusing too much on that side of things (e.g., we should focus 20% on avoiding bad deals, and 80% on not missing good ones).
Eliezer 16y ago
I think this maxim should be qualified as applying only to startup investing, and YCombinator investing in particular. If you're otherwise getting 20% returns, investing 20% more money annually in losing investments will trash those returns. And 20% would be pretty good for the VC industry nowadays, or a hedge fund, or even Berkshire Hathaway. With investments like Heroku, YC is probably doing better than 20% and can afford a winner-based strategy - but this will rarely be a viable mode of thinking in finance generally.
- vessenes 16y ago
  Interesting. One way you just made me think of this is considering what a 'great' investment return is. Let's say it's 20%. If you're getting 20% already, you might as well expand your base looking for more 1000x returns, and not cry too much about bad placements; this investing business has a significant opportunity cost risk which means you probably want to err on the side of putting some money in. If you're over 'great' returns, you can afford to do that, and should. On the flip side, if you're under 'great' you probably want to figure out how to prune your choices away a bit first.

Identifying the winners is more important than identifying the losers. It's the investments you don't make that kill you.

by paul 16y ago

Identifying the winners is more important than identifying the losers. It's the investments you don't make that kill you.

joshu 16y ago

Yeah, but not making the bad bets is a good idea. Big mistakes, so far: - startup has no lead investor - startup is raising too little - generally, not having an investment thesis Curiously, I've been working on taking stock of my angel portfolio as well lately, though it seems gauche to talk dollar numbers.

kenjackson 16y ago
Talk dollar numbers... I think I'd be safe in saying, we're all ears. :-) The problem with bad bets is that they take money from your good bets. If Paul's only bets were Heroku and Mint, he would probably have a much larger return.
- joshu 16y ago
  Ok. I tend to invest $10-$25k. There was one for $50k (which is a loser) and one for $40k (which returned a bit.) The better investments tended to have smaller allocations for me. Hotter deals tended to go on to Series B. I've spent maybe $800k on investments. The unrealized value of the portfolio is approximately $1.6m, most of which is in one company. Since the original investment was only $25k and my first actual investment, if I had just stopped there I would be doing way better. I cannot conclude that I am actually any good at this.
  - wslh 16y ago
    What % of stocks do you take aprox?
    - joshu 16y ago
      The better opportunities tend to have higher valuations. Most things are at $3-4mm pre at the very least (and I tend to pass on lower-end stuff than that.) Divide it out :)
  - kenjackson 16y ago
    That's actually quite good. You and Paul are both ahead of the game, and it seems to be the case that there are quite a few exits. It _seems_ like if you're in there long enough you eventually hit a Groupon, Facebook, Google, or happen to be in during a big boom. At worst you're out $1M. Not bad odds, although I think you and Paul have opportunities that most of us would never see (and rightfully so).
    - joshu 16y ago
      You have to compare the numbers annualized (which is hard to do, since the data isn't in) and then compare that to contemporaneous treasury returns (and maybe the stock market i guess) to get a real sense if it's good or not.
paul 16y ago
Yes, avoiding bad investments is definitely good. However, I think people have a natural cognitive bias towards loss-aversion, which means that we need to be careful that we aren't focusing too much on that side of things (e.g., we should focus 20% on avoiding bad deals, and 80% on not missing good ones).

Eliezer 16y ago

I think this maxim should be qualified as applying only to startup investing, and YCombinator investing in particular. If you're otherwise getting 20% returns, investing 20% more money annually in losing investments will trash those returns. And 20% would be pretty good for the VC industry nowadays, or a hedge fund, or even Berkshire Hathaway. With investments like Heroku, YC is probably doing better than 20% and can afford a winner-based strategy - but this will rarely be a viable mode of thinking in finance generally.

vessenes 16y ago
Interesting. One way you just made me think of this is considering what a 'great' investment return is. Let's say it's 20%. If you're getting 20% already, you might as well expand your base looking for more 1000x returns, and not cry too much about bad placements; this investing business has a significant opportunity cost risk which means you probably want to err on the side of putting some money in. If you're over 'great' returns, you can afford to do that, and should. On the flip side, if you're under 'great' you probably want to figure out how to prune your choices away a bit first.