Beware the Guru
By June 17, 2021– Published on
Last week I shared my most important rule as an investor - define your investor habit.
My portfolio time is 5am - 8am Monday to Friday, after which I am pulled into other priorities. Being disciplined with this time, month after month and year after year has compounded my growth as an investor.
Learn the Macro to find the Micro
Understanding what trends are forming and which direction capital is flowing is key to spotting tailwinds that can boost the venture markets.
Although I am not a macro investor, the macro trends often point to the micro investment opportunities. This is key for early stage investors - I may be bullish on renewable energy but I’m not going to buy Tesla, it's not my style. I go as early in the supply chain as possible - so for me, playing the EV trend is investing in the ingredients that Tesla needs to build more cars. This removes certain risks - Tesla and its competitors will purchase the inputs whether or not they hit their earnings targets, have delays in production or end up with recalled models.
To determine which trends are worth paying attention to, I follow the money. Every week I interview several professional money managers, allowing me to keep a beat on what direction the “smart money” is moving.
My ambition with these conversations is to hear as many perspectives as possible so that I can craft my own thesis. If I interview 20 different investors, I will hear 10-12 unique ideas, some closely related and some adamantly opposed.
I always hear one or two ideas in which my guests have reached consensus - everyone agreeing that the same asset is over/under valued and about to change in price.
I only put weight on the individuals who back up their conviction with dollars - people who put skin in the game. This doesn’t make them correct in their ideas, but it is the truest indicator of honesty that I have found.
Example: I went heavy into Bitcoin in the spring of 2020 after hearing 90% of my show guests tell me they were building positions. They didn’t all agree on the longevity of the trade or even the definition of what the asset was, but I saw a tsunami of money moving and put myself in front of it.
Who to trust?
In a media environment with zero barrier to entry - it is hard to determine whose opinion is worth paying attention to. When sifting through the plethora of financial guru’s offering commentary, insight and advice, it is tricky to know how much weight to put on any one perspective.
Here is some advice - always think critically about the individual's motivations. Are they in the business of making money in the market, or in the business of making money off of you? Investors often believe that paying for someone's premium service will help them cut through the noise and get straight to the signal. In reality, the paid content business is rife with hustlers whose core business is subscriptions, not investing.
Beware the Guru.
Everyone is going to tell you that they have skin in the game, but this can be hard to verify. My first question is - if you are the market wizard you claim to be, then why would you work for me?
Between my Youtube Channel and my newsletter, I have close to 200,000 subscribers. I have had many people pitch me on building a premium content business. “Let's take 20% of your content and put it behind a paywall - it’s a no brainer!”
I am aware I am leaving cash on the table - but I’ve shut this idea down for a few reasons. As soon as I take someone's money in exchange for monthly content - I am obligated to perform for them - every month, regardless of whether or not I see anything worth doing in the market - and often the best trade is patience.
I create videos and author a newsletter because it serves my portfolio - it’s a platform that provides me conversations with investment legends that would normally be out of reach for a retail investor. In that sense, my content works for me. As soon as I take a subscriber's money, I work for them. Producing free content allows me to do whatever I want, without bias.
On that note - here is another red flag that will get a lot of people mad at me.
There is no shortage of idea specific investment gurus - individuals whose brand is tied to a specific thing - gold, silver, cannabis, crypto etc. If the brand of the investment guru is also the name of a specific investment idea… you need to think very critically about that author giving you an unbiased outlook.
For example, if the investment authors brand is The Cannabis Speculator, are they in the business of making money in the market, or in the business of selling cannabis investment advice? If the latter - they will push to keep you interested in Cannabis, whether or not it's a good investment idea. When the industry turns unfavourable, telling the readership to “pull your money out of cannabis and get ready for a 5 year bear market” would not be great for business.
There is a time to buy something, and there it a time to sell it. If you are getting your information inside of a vacuum, you will likely miss the sell signals.
As a general rule of thumb I am skeptical of any of the tacky brands or small cap news platforms and stick with individuals who publish under their actual name. It leaves less room for funny business.
One of my early mentors in this business was Marin Katusa. His brand is his name - Katusa Research. He’s a newsletter writer, but at the core of it all he is a fund manager with skin in every deal he talks about. And his brand is his name - so his name is what he is unwilling to compromise. If he thinks gold is going to fall to $1300, he says so. He will compromise his gold bug following but not his integrity. This doesn’t make him right, but it does keep him honest.
These are not hard and fast rules, but it's important to remember that there are plenty of sharks in the water.
I was an entrepreneur before I was an investor, and the default optimism that made me a good entrepreneur worked against me when I entered the markets. I noticed that the legendary investors I looked up to made habits of trying to say no before they ever considered saying yes, of assuming that people were usually stretching the truth and of questioning everyone's motives. They are cynics before they are supporters, and it’s with good reason - experience.
In my business I still carry my optimistic brain - I trust and then verify. But in the market, I verify first.
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Have a killer day.