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The issue isn't so much one of knowing how to invest, it's more the friction involved in investing in small companies. Random terms on sheets, weird cross-count

The issue isn't so much one of knowing how to invest, it's more the friction involved in investing in small companies. Random terms on sheets, weird cross-country concerns (like Canadian startups that want to maintain CCPC status), not being able to liquidate on demand. What I want is something closer to a stock market for startups. But I get why that can't happen: Too many scams with small companies. Even today on places like TSXV there are tons of scams and it would only get worse. If the market existed the bad would probably outweigh the good. I'm just sad because the good would have been great for me.

OJFord 6y ago
Right, I didn't mean that you didn't know how, just that it's high effort and capital requirement for such early stage companies; which used to be more true for publicly traded companies (phone calls, letters, physical share certificates) and investment clubs were/are a way of pooling resources. Family offices, but a club rather than a family, I suppose. But it sounds like you want something more like VC-backed ETFs, with a pretty granular or even single-company focus, such that you agree with the underlying's focus, but don't have to deal with the lawyers etc. side of it. Actually it's been a theme of Matt Levine's that the trend is toward ETF everything, ETFs of ETFs, 'nobody' dealing directly in the underlying.
- 3pt14159 6y ago
  I know ETFs are more popular with most people, but I'm a reasonably good investor. Average about 18% a year on a 50-50 mix of stocks and bonds, and that's before counting cryptocurrencies. I absolutely knew that DigitalOcean was going to win as soon as I saw their UI, API, and pricing. I was almost as sure with GitHub. What I like about dealing with the underlying in stocks is I can evaluate the product. Certain companies are no brainers when it comes to product (bought Tesla at $30, early Shopify, Apple after the iPhone came out, etc) and once I check out that their fundamentals don't leave them out of cash in a year or two I don't mind making the call. I also don't mind selling early. Buying hundreds of shares of Apple and selling call options at 10 or 15% above the current price six months out is a reasonable way of making a good return without getting greedy. If it swings south again I buy again. That said, I haven't bought much in a couple years. The easy wins aren't there and the market as a whole was overvalued before covid and now it's just bananas. So I wait like a bear and make some piddly 1% return in a money market fund. Tempted to short the market, but I don't like shorting and puts are too expensive right now because of volatility.
  - OJFord 6y ago
    ETF doesn't have to mean basket of shares though, there are already bond, short, mortgage, and all manner of ETFs. In theory I don't think anything stops a VC from investing in Digital Ocean's series whatever, and then launching an ETF derivative. I mean, maybe the series' terms, but probably mostly the lack of incentive. In the UK (at least) there are venture capital trusts (VCTs) which give exchange traded access to 'venture-stage' private companies, but that's still a (small) basket of someone else's choosing rather than your own ideas and DD. Basically I agree, I'd like it too. (I'd have had Stripe and Cloudflare (now $NET) some time ago for sure.) I'm just trying to think through how it could work, what it might look like. Crowdfunding rounds are obviously closest, but it's rare, at the companies' discretion even more than the decision to raise, and even says something about the sort of company it is.
    - 3pt14159 6y ago
      100% agree with everything you said. I knew about non-broad basked ETFs but I think you knew that I knew anyway. Crowdfunding looks nice, but I just want protection for the public at the same time as I want high-skilled technologists to be able to invest in obviously undervalued startups.

OJFord 6y ago

Right, I didn't mean that you didn't know how, just that it's high effort and capital requirement for such early stage companies; which used to be more true for publicly traded companies (phone calls, letters, physical share certificates) and investment clubs were/are a way of pooling resources. Family offices, but a club rather than a family, I suppose. But it sounds like you want something more like VC-backed ETFs, with a pretty granular or even single-company focus, such that you agree with the underlying's focus, but don't have to deal with the lawyers etc. side of it. Actually it's been a theme of Matt Levine's that the trend is toward ETF everything, ETFs of ETFs, 'nobody' dealing directly in the underlying.

3pt14159 6y ago
I know ETFs are more popular with most people, but I'm a reasonably good investor. Average about 18% a year on a 50-50 mix of stocks and bonds, and that's before counting cryptocurrencies. I absolutely knew that DigitalOcean was going to win as soon as I saw their UI, API, and pricing. I was almost as sure with GitHub. What I like about dealing with the underlying in stocks is I can evaluate the product. Certain companies are no brainers when it comes to product (bought Tesla at $30, early Shopify, Apple after the iPhone came out, etc) and once I check out that their fundamentals don't leave them out of cash in a year or two I don't mind making the call. I also don't mind selling early. Buying hundreds of shares of Apple and selling call options at 10 or 15% above the current price six months out is a reasonable way of making a good return without getting greedy. If it swings south again I buy again. That said, I haven't bought much in a couple years. The easy wins aren't there and the market as a whole was overvalued before covid and now it's just bananas. So I wait like a bear and make some piddly 1% return in a money market fund. Tempted to short the market, but I don't like shorting and puts are too expensive right now because of volatility.
- OJFord 6y ago
  ETF doesn't have to mean basket of shares though, there are already bond, short, mortgage, and all manner of ETFs. In theory I don't think anything stops a VC from investing in Digital Ocean's series whatever, and then launching an ETF derivative. I mean, maybe the series' terms, but probably mostly the lack of incentive. In the UK (at least) there are venture capital trusts (VCTs) which give exchange traded access to 'venture-stage' private companies, but that's still a (small) basket of someone else's choosing rather than your own ideas and DD. Basically I agree, I'd like it too. (I'd have had Stripe and Cloudflare (now $NET) some time ago for sure.) I'm just trying to think through how it could work, what it might look like. Crowdfunding rounds are obviously closest, but it's rare, at the companies' discretion even more than the decision to raise, and even says something about the sort of company it is.
  - 3pt14159 6y ago
    100% agree with everything you said. I knew about non-broad basked ETFs but I think you knew that I knew anyway. Crowdfunding looks nice, but I just want protection for the public at the same time as I want high-skilled technologists to be able to invest in obviously undervalued startups.