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Investing

Every decision or indecision, made consciously or not, is an investment in your future.

first principles of flow

Stories influence how we interpret reality, an investment story is about a expected reward for a given time horizon. Build better stories to make better investment decisions that lead to making meaningful progress.

Learn how to use your time and energy wisely. Learn to sell better stories that navigate balancing the need to invest in the moment versus investing in the future.

Principles​

Value Stories​

Value investing is the capability to reliably predict the future based on a story you convince yourself will become a reality.

If you wish to possess things of value, you should be able to define how you measure value.

Marketplace​

The market is prone to extreme mood swings that cause prices to fluctuate wildly, often disconnected from fundamental value. These mood swings tend to oscillate between euphoria and depression, leading to overpricing and underpricing of assets.

The key is to remain rational when others are being irrational and to see market overreactions as opportunities rather than threats.

Irrational Behavior​

Several factors contribute to irrational market behavior:

  • Perception shifts: Investors' perceptions of events can change dramatically, even when actual conditions haven't changed much.
  • Cognitive dissonance: Investors tend to ignore or reject information that contradicts their existing beliefs.
  • Contagion: Negative sentiment in one market can spread rapidly to others, like a game of telephone.
  • Ambiguous interpretation: The same news can be interpreted positively or negatively depending on the prevailing mood.

Psychological Factors​

  • Optimism bias: Investors, especially equity investors, tend to be optimistic by nature.
  • Wishful thinking: People often believe what they want to be true, rather than what is actually true.
  • Short memory: Investors quickly forget past mistakes, leading to repeated cycles of euphoria and panic.

Lack of Immutable Rules​

Unlike natural sciences, investing lacks consistent, immutable rules. What works in one market environment may not work in another. This lack of dependable principles contributes to market instability.

Market as a Voting Machine​

The market acts more like a voting machine reflecting investor sentiment rather than a weighing machine assessing fundamental value. Daily price movements often reflect changes in psychology rather than changes in underlying fundamentals.

Opportunity in Volatility​

Prudent investors can take advantage of Mr. Market's mood swings by:

  1. Forming independent views on asset values based on fundamental analysis
  2. Selling when prices are irrationally high
  3. Buying when prices are irrationally low

Protocol​

Evolve a well-defined investment protocol to promote consistency, reduce emotional decision-making, and improve overall investment discipline. Leverage customized AI Agents to automate running investment strategy.

  1. Investment policy statement: This outlines the overall investment goals, risk tolerance, time horizon, and any constraints or preferences. It serves as the foundation for investment decisions.
  2. Asset allocation strategy: Determine the mix of asset classes (e.g. stocks, bonds, real estate) based on goals and risk profile. This provides a framework for portfolio construction.
  3. Due diligence process: Establish a systematic approach for researching and evaluating potential investments, including fundamental and technical analysis as appropriate.
  4. Risk management guidelines: Set parameters for managing portfolio risk, such as diversification requirements, position sizing limits, and rebalancing triggers.
  5. Performance monitoring: Define metrics and benchmarks to evaluate investment performance, along with a regular review schedule.
  6. Entry and exit criteria: Specify conditions for initiating new investments and criteria for selling or exiting positions.
  7. Compliance checks: Include steps to ensure investments adhere to any regulatory requirements or internal policies.
  8. Documentation standards: Outline how investment decisions and rationales should be recorded and archived.
  9. Review and update process: Build in periodic reviews of the protocol itself to ensure it remains relevant and effective.

See index of protocols that run the world.

Checklist​

Evolve a checklist to improve and consistently record the chain of thought that went into developing the rhetoric for and against taking an investment decision.

  1. Intentions:
  2. Value System
    • What is valuable?
    • Why is it valuable?
    • How is it created?
    • How, where is it stored?
    • How does it change state?
    • Who, what influences changes of state?
  3. Belief System
  4. Control System
    • What can you control?
    • What do you need to measure?
    • What are the best tools for leverage?
  5. Timing and Positioning
    • Cycles, Business, Macro
    • Secular Trends
    • Token unlocks
  6. Evolve Questions
    • What can you do better?
    • What questions should you be asking?
    • What could go wrong?
    • What could go right?
    • [What is the end-game?](docs/progress/the-endgame

Capabilities​

What capabilities are required to make better investment decisions?

  • Investment Research
  • Fraud Detection
  • Portfolio Analysis
  • Portfolio Valuation
  • Exposure Modelling
  • Risk Modelling

Assets​

What thesis for investing each? What fundamentals underlie their value? What narratives/forces drive their price discovery?

Narratives​

Current narratives capturing attention.

Raising Capital​

Everyone involved with a business is an investor of some sort:

  • Leaders invest their time and energy selling stories the drive momentum and steer direction
  • Everyone the earns money from the business invest their time in energy to committing their unique talents
  • Customer invest their money, time and energy to get up to speed with a product
  • Capital investors invest belief and liquidity in ideas until they hit a critical mass of adoption.

Business Model Alignment​

  1. Scalability: Does your business have the potential for rapid, exponential growth?
  2. Market size: Is your target market large enough to support venture-scale returns?
  3. Exit potential: Are there clear paths to a lucrative exit (acquisition or IPO) within 5-10 years?

Founder Goals and Readiness​

  1. Growth ambitions: Are you aiming for rapid expansion rather than steady, organic growth?
  2. Equity dilution: Are you comfortable giving up a significant portion of ownership?
  3. External pressure: Can you handle the increased scrutiny and expectations from investors?

Financial Considerations​

  1. Capital needs: Does your business require substantial upfront investment that can't be funded through other means?
  2. Revenue model: Is your business model designed to prioritize growth over immediate profitability?
  3. Return potential: Can your business realistically provide the high returns VCs expect (typically 10x or more)?

Operational Factors​

  1. Team strength: Do you have a stellar team that can impress VCs and execute on ambitious plans?
  2. Proof of concept: Have you demonstrated initial traction or validated your business idea?
  3. Competitive advantage: Do you have a unique selling proposition or defensible intellectual property?

Strategic Alignment​

  1. VC value-add: Would you benefit from the networks, expertise, and resources that VCs can provide?
  2. Long-term vision: Does your long-term vision for the company align with the typical VC investment timeline?
  3. Control: Are you willing to potentially cede some control and decision-making power to investors?
Mantra

Set clear expectations, no surprises, no tears

Attachments​

What is the most important question you could ask yourself to make progress?