Fred Wilson (defrag speaker) has a wonderful blog post up about investing that combines investing theory with gambling- and immediately gets my blood flowing.
As an entrepreneur (running Defrag and Glue), I’m a “base hit” kind of guy. That is to say, that I’m very comfortable planning, building and executing on businesses that are “lifestyle businesses” not “vc money, hit one out of the park” businesses.
I’ve never been an angel investor (or a VC), though I suspect at some point in my life I will be (an angel). And I know that my investing style as an angel will most likely mimic my trading style (when I was trading stocks for a living) and gambling style –which is to say that it will be radically different from my style as an entrepreneur. Let me explain.
As a stock broker, my *primary* function was to sell. That’s what stock brokers do, they’re salesmen. They’ll tell you that they’re financial planners, or “wealth management specialists,” or some other crap — whatever, they exist (from the perspective of the firm they work for) for one reason: to sell you financial products/services.
However, stock brokers have different styles. I sought out clients that wanted to trade. I shunned “buy and hold” investors. I did that for a very simple reason. I had been trading stocks on my own for several years prior to being a stock broker and I knew my “style.” I’m and in and out, take your profits, don’t look back kind of guy. (sidenote: I’m not speaking here about the good/bad qualities of that style, where you have to consider commissions, taxes and a whole host of other things.)
I left the financial world to get into tech startups - purposefully. I had written an article that TheStreet.com was going to publish (about technology companies) and the firm I worked for said “no” — so I walked.
More than 10 years later, I’m still a startup guy. I’ve advised, been the first employee of, helped raise angel (A, B, C) rounds, been the VP of marketing, had a board member tell me he wanted to fire me — the whole spectrum. And I’ve loved it. The “game” of being an entrepreneur is an experience I wouldn’t trade for any other profession in the world.
Along the way, I discovered that I really enjoy gambling (you’ll excuse my rambling). I’m a craps guy, strictly speaking, but games of chance like black jack are also a good time. I do NOT consider poker to be “gambling”; poker is a game played by mathematical geniuses that will take your money for fun. Gambling is a game of chance, wherein you must understand odds, manage your capital correctly, and teach yourself how to ride trends to have any shot of making real money. In short, it’s a hell of a lot like the stock market.
There are several things I’ve learned from trading stocks and shooting Craps:
1. You must know the rules of the game (understand the odds). As Fred points out, there are situations when “doubling down” is the right thing to do (when you’re sitting 11 and the dealer shows a 10 or less - for instance). In fact, were it not for the ability to “double down” and “split” at blackjack, it’d be the worst house edge going (I mean that analogously to angel investing).
2. Capital Management is the foundation upon which all else is built. And that means knowing how to take a loss. Period. You will lose more than you’ll win. That’s normal.
3. When the table (or stock) gets “hot” - you ride it. When it gets cold, you head to the bar (self-explanatory).
4. It’s not pretty, glamorous or fun. There aren’t blondes kissing you and people cheering. Whether you’re trading stocks or trying to flip that .5% house edge on it’s ear, it is hard WORK. People that make money work hard.
All of that is a long way to say that when I do become an angel investor somewhere down the road, I’m sure that my “style” will be the same as it is when I trade stocks or shoot craps. And that “style” will be RADICALLY different from my style as an entrepreneur (where I’m a fairly conservative, base-hit kind of business builder).
At the end of the day, it really is just about “knowing your style” (and yourself) in the context of what your activity is. Either way, I’d bet that entrepreneurs become better entrepreneurs by learning the lessons of trading stocks and shooting craps.
Hmmm…maybe I’ll start thinking about a “casino night” at Defrag