Navigating the investment path of least regret

This post was originally published on this site

There’s the guy who cashed out his 10 per cent of Apple in 1976 for $US800 (worth $US220 billion today) and those poor souls who lost their crypto wallet passwords with tens of millions of dollars of the stuff trapped.

I’ve got a few tales myself.

The capital markets have always been a little random, but in the age of the meme stock, it is very much a feature, not a bug.

One was drinking a martini in a bar in New York in June 2014 and being told how bitcoin will revolutionise finance, and allow people in even the poorest countries to move money around at next to no cost. My drinking companion’s suggestion: short Western Union stock.

I didn’t do that, but I can’t help thinking that buying some bitcoin wouldn’t have been a bad idea.

Then there was the time – August 2012 to be precise – I was enthusiastically lectured by the father of a friend at a birthday party about this electric car company called Tesla.

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He’d pre-ordered the Model S, one of the first to do so in Australia. The following morning I had coffee with a hedge fund manager who said buying Tesla shares was a pretty stupid idea, that everyone was actually shorting it, and Volkswagen had the better tech.

That would have been a calamitous pair trade. There are many other examples. And readers would no doubt have their own (which they are encouraged to share with me). While the father loves his Tesla like his child, he can’t help but wish he’d just bought a few shares too.

The retail punter out there can take some comfort that even the smartest investors get things spectacularly wrong.

The two people I mentioned are among the smartest people I know. But there are others: the private equity tycoon whose daughter introduced him to the young man who would create Airbnb, or the unconfirmed fable about the Australian student who called home for $10,000 to help get this thing called The Facebook off the ground.

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Few have the foresight to really know what idea is going to work. It’s inherent in the venture capital model where many small bets are spread across a portfolio in the hope one will cover the losses of the others.

As one investor explained to me, one of Silicon Valley’s most illustrious funds holds a vote after each investment where each analyst is asked if it will be the fund maker, or a doughnut. Over time, the investor said, the relationship is negative. The ideas they expect to work often fail, while those they think are moonshots come good.

It’s fair to say things are a little crazier now. Even in hindsight, it’s hard to be too regretful about not investing in dogecoin. That it would be more valuable than most European banks still doesn’t make it an obvious trade.

The capital markets have always been a little random, but in the age of the meme stock, it is very much a feature, not a bug.

So don’t be too hard on yourself. If there is something that investors should be regretful of, it’s around the basics of investing – having a sensible plan and sticking to it. Everything else we really should get over.