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Thoughts that unite the various themes on this blog:
Originally posted October 28, 2010 by Robert Steven Kramarz:
My first contribution to this blog was inspired by a best-selling book on investing, entitled The Only Three Questions That Count — Investing by Knowing What Others Don’t by Ken Fisher. Ken is someone I listen to and you should to, frankly. He manages over $30 billion in his money management firm and is on the Forbes 400 list of wealthiest Americans. He eats his own dog chow and has made out very well doing it.
Ken’s thesis is that no one succeeds in investing by doing what other investors, including experts, are doing. This is because financial markets discount (i.e. build into the price of all investments) all commonly used strategies. He proves that in the long run, if you do what other investors do, your rate of return will be the average rate of the return of the entire market, which isn’t very much. You might as well stop working at investing and simply invest in an S&P index fund. In my investment experience, he’s right.
His thesis is, in summary, as follows. In order win as an investor, you MUST know something that the public, including experts, does NOT know, and act on it.
If you’re an angel or VC investor, investing in start-ups, or emerging growth companies, what’s this got to do with how you select companies to invest in?
If you’re a founder or executive of a start-up or fast-growing company, what’s this got to do with running a company?
Well, to begin with, whether you’re a founder or executive, let me assure you, you’re an investor, even if you didn’t invest any cash in the company. Aren’t you investing your valuable time? Investing three to five years in the prime of your life is no small investment. Aren’t you investing your valuable reputation? Aren’t you giving up other opportunities? Aren’t you investing hours otherwise spent with friends and family and asking your family to invest their devotion in your dream? So you’re investing in your company whether or not you’ve invested cash.
In brief, therefore, you can’t get away from the fact that you’re probably an investor if you’re reading this blog. Founding, running or investing in a start-up, a privately held growing company or an emerging growth public company are all forms of investing. In other words, we’re all investors. Even if you’re a consultant, you’re investing when you choose who to take on as a client.
But what does Ken Fisher’s thesis have to do with the likes of us? After all, Ken is talking about investing in the public markets, where there is a great deal of liquidity.
In my next blog post, I’ll tell you exactly how to use Ken Fisher’s thesis to win as an investor, founder or executive in an entrepreneurial company. This will apply whether you are contemplating starting a new company or have already started one or joined the team of one. This will apply whether you’re contemplating investing in an entrepreneurial company, or have already invested in one. This almost certainly apply to you.
In sum, Ken Fisher’s thesis is that in order win as an investor, you MUST know something that the public does NOT know, and act on it. My column and this blog as a whole will give you something that the general community of entrepreneurs and their investors does NOT yet know.
