My Investment Considerations
Five Of My Primary Considerations When Investing
"If you don’t find a way to make money while you sleep, you will work until you die.”
— Warren Buffet
What Got Me Thinking 💭
📚 The Prosperity Paradox | Clayton M. Christensen, Efosa Ojomo, and Karen Dillon
📚 Zero To One | Peter Thiel
Wealth disparities exist between different socioeconomic groups. As the child of ethnic migrants, I was encouraged to save and invest in property. However, I’ve learnt in recent years that one of the best ways to accumulate wealth is through investing in other asset classes. Since 2017, I’ve been investing in startups, public companies and cryptocurrency. Below, I’ve decided to outline five of my primary considerations when investing in companies across different stages:
Innovation Category:
Q: Is this innovation creating or contributing to an entirely new market?
I’ve spoken about different categories of innovation in a previous newsletter. I’m most interested in companies that create new markets, converting non-consumption into consumption. This may look like increased accessibility, making something readily accessible to a broader audience than before. Or it may be an innovative solution that naturally brings in entirely new markets.
One method to spot new markets is to identify problems traditional VCs tend to overlook. By this logic, under-represented communities within the venture space provide immense opportunities. There, exists are substantial solvable problems that VCs are yet to fund.
Market Size:
Q: If this company captures a narrow slice of the market, will they reach billions in revenue?
According to investors like Elad Gil, this is possibly the most crucial question. It’s better to invest in companies that get a small piece of a big market over a significant segment of a small market.
Q: Is the market growing or shrinking?
Consider the trajectory of markets in addition to their current size. For example, oil majors used to be 10x the size of green majors. Now they're similar.
Key Performance Indicators (KPIs):
Q: Are the company's metrics healthy, and if not, is it easily rectifiable?
Depending on the type of startup, there are various KPIs to monitor. For example, SaaS businesses need to be mindful of churn, lifetime value, customer acquisition cost, etc. For stocks, the equivalent is fundamental analysis.
Initially, a company may be unprofitable due to the business model or lacking economies of scale. In these cases, becoming profitability may be a future aspiration.
Team:
Q: Is the company leadership good?
“Good” is intentionally vague because I’m speaking holistically. The best leaders are driven, innovative, thorough, fast at execution, and ethical.
Startups are rarely overnight successes, usually requiring over a decade of work;
Standing out from the competition to become “best in class”, requires excellence;
Clubhouse is impressive because initially, two founders continuously shipped multiple major updates daily; and
Robinhood app built trust for eight years and lost it in a day due to one unethical move - as far as users were concerned.
Customers:
Q: What the company customer’s think?
Companies viewed as one of many alternatives have questionable long-term value. Conversely, products that are loved and healthy communities form durable foundations for brand loyalty. The long term benefits of loyal and happy customers are unparalleled.
Final Thoughts
Investors aren’t monolithic (e.g. see Mac’s Tweet and the comments). They have various priorities, foresee distinct worlds and tolerate different risks. So, developing your investment thesis matters. It ensures your investments stay in line with your long term beliefs.
Questions & Actions
Where do you think the world is heading?
Which qualities define the best companies?
What areas of innovation do you think will change the world?
What is your strategy for beating the market?
Create an investment thesis that answers the above and outlines what you believe to be the future. (Check out ARK’s report below for inspiration.)
Yes - I’m The Plug 🔌
Angel and VC Resource Library: Click Here
How to start a micro-angel investing thread: Click Here
Ark Investment - Big Ideas Report 2021: Click Here
Backstage Capital is crowdfunding: Click Here
Tax planning guides (UK specific): Click Here
Do You See What I See? 🗞👀
♣️ Elon Joined The Club | The Mind Of The World’s Riches Man
The world’s richest man joined clubhouse a couple of days ago and practically broke the app. The room hit the limit, 20+ of overflow rooms formed, and a live youtube stream. He touched on many topics, including Mars exploration ambitions, NeuralLink’s roadmap, Tesla’s AI, and much more. He also had an interesting conversation with the founder of Robinhood. The transcript of their discussion is available in the link above.
Speaking of Robinhood…
Hedge funds aggressively shorted Gamestop, hoping to make money off their decline. However, a community of Reddit based retail investors pumped the stock price to “stick it to the man” - costing Wallstreet billions. This move gained momentum until Robinhood pulled the plug on all buy orders. They’ve offered reasons, but none seem to satisfy their users. Now, the company faces thousands of negative reviews, online insults and a class-action lawsuit.
📈 Return Of The SPAC | Hidden Figures
SPACs are special-purpose vehicles, designed to take companies public whilst bypassing the traditional IPO process. They have gained traction over the last year - and there are no signs of it slowing.
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