In Search of the Perfect Investment

When I told my Australian boss I was going to America, he said I’d love America, because “The Americans were just like me.”

How so? I asked.

He said they substituted enthusiasm for intelligence.

I thought he was insulting me, and America.

But after I got here, I learned it was a great compliment.

Americans start crazy businesses. They have no idea of where the business will go. There’s no research. No history. Just enthusiasm. But they build awesome companies like Amazon, Apple, Google, Facebook and Netflix.

They just do it.

We institutionalize enthusiasm. These companies did not come from Europe or Asia. They came because we, as Americans (I’m now one), just do it.

We worship speed. We worship improvement. There isn’t a business whose products can’t be made better, whose sales can’t be pushed harder or whose finances can’t be strengthened.

This is what drives you and me to find businesses to start, to invest in, to take the risks others won’t.

Funny thing this “risk” thing. As I grew the business I started, I never thought our new ventures — new magazines, new trade shows, new conventions — were “risks.” They were what I knew. I was there. They had to succeed.

Not all did. But I have a short attention span and I quickly dumped the losers.

I’m grateful to America for the opportunities it’s given me, and continues to give me.

This year is my 50th year in America. It’s my anniversary and America’s birthday. It’s an awesome weekend.

Today I want to touch on some of the changes.

The most profound change is we went from an America in which capital was scare and opportunities plentiful, to an America in which money is plentiful and opportunities scarce, or expensive, mostly both.

Early on, venture capital and private equity funds routinely earned 30%+ IRR. Now we’re lucky to achieve 4%.

Early on, any Tom, Dick or Harry could become hugely rich by starting a hedge fund. Now, many have desultory returns. Many even are losing money. And they’re closing them down.

The second profound change is the pace of change — obsoleting yesterday’s opportunities faster than ever. But producing new opportunities even faster. Technology is the culprit. The microprocessor. The Internet. The Cloud. The three main reasons retail stores are dying. Why Amazon, Apple, Google, Facebook and Netflix are thriving.

The third profound change is the explosion of knowledge and the urgent need for all of us to keep up. This is a two-edged sword. For those of us willing to put the time and study in, the rewards can be immense. But for those of us living and coasting in erstwhile glory days, it’s a threatening world. I have one nice man who still runs his multi-million dollar business with hand-written spreadsheets. His major “technology” is an eraser. And sometimes WhiteOut.

This constant need for new knowledge is not always good for investors, like you and me. Fewer entrepreneurs/business executives have the skills to manage in today’s complex world. That company I invested in with the “Cure for cancer” didn’t make it because the founder didn’t have modern skills.

And didn’t listen.

That hasn’t changed. Nobody listens. Maybe it’s the arrogance born of enthusiasm? Maybe it’s just arrogance born of insecurity?

I don’t know.

This week I went through files and files of startups I’d invested in. Only a handful succeeded. Of the failures, I checked the number of times I’d reached out to the CEOs with ideas for “advisory” boards, for ideas for new technology. None listened. They simply ambled their way to quick bankruptcy.

None of this has dampened my enthusiasm for the business opportunities America presents each day. I see about six opportunities a week. I’m also aware that opportunities today follow a three-tier scale.

+ The best opportunities go to friends and families.

+ The second best opportunities go to venture funds.

+ The third best opportunities (the dregs) go to private investors like me.

If I want to play that game, I’d better move the pecking order up or start something myself (again). Which is my preference.

The good news is there’s plenty to start. There’s plenty to buy. There’s plenty to fix. Four caveats:

+ Don’t underestimate the money it will take. Spend $1 on engineering. Spend $10 on marketing and sales. Violate that rule and it’s over.

+ Don’t underestimate the skills you’ll need. This blog is about seeking the perfect investment. It’s not always finding that one listed nugget of a security — like Square (SQ) or Amazon. It’s finding the skill you need — maybe learning Excel or a programming language like SQL, Java, Python, C++ or Ruby on Rails. Or the knowledge of how to avoid Lyme Disease — yesterday’s blog.

+ Don’t underestimate the pace of change in our society, especially technology. Look what fracking did to the petroleum business. It sliced the price of a barrel of oil by more than half. That changed everyone’s economics, forcing many oil producers to pack it in.

+ Don’t discount gotchas. Expect them. Gotchas are when the best laid plans or mice and men get messed up by a gas leak or a vital component being discontinued. There are solutions. It’s called maintenance. It’s called planning for the best, but expecting the worst.

Most importantly, keep your enthusiasm percolating and enjoy every wonderful moment America presents us.

Enjoy this ultra-long weekend.

And enjoy this rainbow. My dear friend Katherine Kolbert took it from her 39th floor apartment on the west side of Manhattan. The view is east. Look carefully. There are two pots of gold — one each side of the rainbow:

I’ve never seen a rainbow like this. And never in New York City.

Elementary logic

Judge: “Why did you steal the car?”

Man: “I had to get to work.”

Judge: “Why didn’t you take the bus?”

Man: “I don’t have a driver’s license for a bus.”

Harry Newton, who played two hours of tennis this morning, wrote this blog and now will play with grandchild. Sophie, who’s visiting (without the umbrella which she loves).