DON'T make this investing mistake!

Key Concepts

• Observational Investing: Trading public equities based on observed data, including social media and conversational trends.
• Early-Stage Venture Investing: Investing in startups and young companies with high growth potential.
• Opportunity Cost: The potential benefit missed by choosing one alternative over another.
• Annualized Returns: The average rate of return earned on an investment over a year, taking compounding into account.
• Private Market: Investments in companies not listed on a public exchange (e.g., startups).
• Public Equities: Stocks traded on a public exchange.

Investment Strategy & Performance – A Retrospective

The speaker details a bifurcated investment history spanning public equities trading and early-stage venture capital. For approximately half of their life, they’ve engaged in trading public equities utilizing a methodology centered around “observational investing,” incorporating “social art” and “conversational data” – essentially leveraging publicly available information and sentiment analysis. The other half has been dedicated to entrepreneurship and, crucially, 20 years of early-stage venture investing, with current holdings in 160 companies.

Venture Capital Performance & Regret

Despite extensive experience, the speaker characterizes their performance in early-stage venture investing as “pretty much average,” achieving annualized returns of roughly 10-12%. A key detail is the consistent withdrawal of almost all gains annually for the past 18 years. This extracted capital was then reinvested into the private market (early-stage companies). The speaker explicitly states this has been “really unfortunate” due to a significant “opportunity cost.”

The Core Mistake: Underestimating Public Market Returns

The central argument revolves around a miscalculation of potential returns. The speaker acknowledges that consistently achieving high returns in public equities was possible, yet they lacked the self-belief to maintain a strategy focused on maximizing those returns. Specifically, they state they “never even believed in myself that much on the public side that I could continue to do that,” and didn’t consider the feasibility of sustaining returns “of 70 some odd% average returns.” This lack of confidence led to diverting capital to a lower-performing asset class (early-stage venture capital) despite the higher potential returns available in public markets.

Opportunity Cost & Capital Allocation

The speaker highlights the critical concept of opportunity cost. By consistently pulling profits from public equity trading and reinvesting them into early-stage ventures yielding lower returns, they effectively forfeited potentially much higher gains. This wasn’t a matter of risk aversion, but rather a perceived limitation in their ability to consistently replicate success in the public markets. The speaker doesn’t quantify the exact opportunity cost, but the implication is substantial given the 18-year timeframe and the difference in estimated return rates.

Synthesis

The primary takeaway is a cautionary tale about the importance of self-belief and accurately assessing one’s capabilities. The speaker’s experience demonstrates that even successful investors can make significant errors by underestimating their own potential and misallocating capital based on perceived limitations rather than objective opportunity. The regret stems not from the venture investments themselves, but from the lost potential of consistently reinvesting in a demonstrably more profitable asset class – public equities – due to a lack of confidence in sustained performance.