Not investment advice – not financial advice. Never invest money that you can’t afford to lose. Every investment is risky. You can lose what you put in!
What should you look for when investing in exponential technologies?
There are a few simple considerations that can help you make better decisions when investing in emerging tech – whether that’s angel investing, buying crypto, NFTs, or even growth stocks.
It goes without saying, but this is not investing advice… do your own research.
When you are not an accredited investor, the difficulty in acquiring equity in a private company much more difficult, but these principles apply to any investment one might make.
You are forming hypotheses and betting on what will happen in the future. Try to buy the future at a discount.
Embrace a long-term mindset
- Focus on long-term fundamentals — invest with a 10-year time horizon.
- There are many short-term investors out there. Unfortunately, I don’t have insight into the day to day or even quarter over quarter changes in market conditions. Because of this, trading and short term investing is not and never will be a strategy that I follow.
- With emerging technologies, quarter over quarter performance is not important. The company’s potential to impact the future is what truly matters. Anticipate how the future might be dramatically different from the present, and find companies building products that will help bring civilization towards that future.
- Find the teams and the communities that are doing the right things the right way for the right reasons, not just to maximize short term financial upside.
- Leadership is important because a lot of this comes from the top, leadership defines this culture of doing the right thing and building long term value over short term (unsustainable) gains.
- Vitalik and Elon embody this. Steve Jobs embodied this.
Buy infrastructure: invest in tools
Cranes and tractors must come before buildings and skyscrapers.
- Before applications of a new technology can thrive, the infrastructure and platforms must be in place.
- All good buildings start with a great foundation.
- Invest in the tools that developers are using to build applications.
- Invest in the platforms and infrastructure. In computer technology of the 90’s, this looks like data centers, servers, and hardware.
- In bitcoin and blockchain, this looks like Ethereum, Tezos, or perhaps anything that enables the creation of decentralized applications (dapps).
Curate your own information
Some people call this “do your own research” aka DYOR. The point is, no one can tell you where to invest. You have to figure that out for yourself. Before we dive into this section, I’d like to share a quote I’ve saved:
Nobody knows the way. Try to figure it out. Forget school and experts. Figure it out yourself.
- Follow ideas from the smartest people in the world. This means following the developers, engineers, and the people that are actually building emerging technologies.
- Search for information from these people that is not mainstream. Dig into developer forums, comment sections, infrequently viewed threads, niche podcasts, etc. Ask this question: Where are the users? Where is the innovation?
- You can find developer communities on Reddit, Discord, Twitter, and more.
- Find the influential minds without a lot of followers.
- In addition, follow the big, influential people in our society that are known to be contrarian thinkers. For example, here are a few of the people I follow. (meaning, read their blogs, podcast appearances, interviews, etc.)
- Elon Musk, Michael Burry, Cathie Wood, Peter Thiel, Vitalik Buterin, Warren Buffet, Charlie Munger, Ray Dalio, Tim Ferriss, Mark Zuckerberg, Kevin Rose.
- Yes, you are becoming a bit of a tech-culture anthropologist.
- Focus on a profitable industry.
- Invest in founders-led companies that also have a long-term vision, and plan on running the company for the coming decades.
- If the founder of the company is still the CEO, that is a good sign.
- Form qualitative hypotheses based on every data point that you can find.
- I say qualitative because its impossible to know how big when dealing with exponential potential.
- Investing in the future is more qualitative than quantitative. Both types of data have their place. I haven’t found a good way to use quantitative data to form quantitative predictions yet. Quantitative data serves the role of predicting where things are headed. You can more accurately predict directional movements, buts it is almost impossible to know when and how far.
General investment thoughts:
- Traditional investors tend to look to the past to determine chances of future success. When investing in emerging tech companies that have 1000X potential, ignore this strategy. Focus on whether or not the team will be able to deliver on their mission, and whether or not their hypothesis is correct.
- Ignore news related to regulation, laws, data privacy, etc. Although a relevant cause for concern, these problems are all very much solvable and do not hinder the company’s ability to grow and remain profitable.
- Dollar cost averaging is overrated. On truly exceptional investments we’re looking for, the earlier, the better.
- The value of encouraging people to “dollar cost average” is if they only have so much to invest at any given time, like in the case of getting paid a salary every two weeks and investing 10% of it in your retirement accounts.
- Swing seldom, swing heavy.
- Although making a big swing early on is the goal, don’t be afraid to buy the dip. On those truly great investments… buying on the upward trend can never hurt.
- Yes, this is slightly against what I said about dollar cost averaging.
- Examples: Ethereum between 2016 – 2021, or Tesla between 2018-2021
- Listen to everyone’s opinion, but be careful which ideas you subscribe to.
- Is the company investing in growing the business, or are hoarding cash? For public companies, look on the 10-k annual report, compare net change in cash over time.
- When investing in exponential technologies, one of the biggest mistakes you can make is selling too early. Reasons to sell include – fundamentals changing or re-allocation to better opportunities. Additionally, if you end up deciding to sell an investment, consider keeping 10% of the holdings as a “just in case is 1000X’s” bet.
Old school investing wisdom that rings true:
- Rule Number 1: Don’t ever lose money.
- Always follow Rule Number 1.
- Only invest what you can afford to lose.
- Be willing to watch your investment go to zero.
- You only need one big win to make up for a hundred poor plays.
- The best time to sell a stock is never.
- Only invest in things that you understand.
- Understand the utility of tax-favorable retirement accounts, and use them to your advantage. That’s why they were invented – for you to benefit from as a citizen. HSA, Roth IRA, 401K, etc.
- A person only needs 1 or 2 big wins in their lifetime to be set for life.
- Don’t be afraid to wait. The money isn’t made in the buying
- Borrow ideas from everyone that is smarter than you. Some investing advice contradicts itself. Become comfortable with the mental eustress of cognitive dissonance.
These are just my strategies that I have used to try and identify tech trends before everyone else.