This weekend I listened to an investor discuss his strategy and track record. The strategy revolves around having conviction about an investment. He gains that conviction through his own research into the company and market. He talks to customers or potential customers who experience the problem the company is solving. Once his belief in the company is sufficiently strong, he pulls the trigger with a large investment. A small number of strong-conviction bets with a large amount of capital is his strategy. It’s worked out extremely well for him—some of his investments have been wildly successful.
Today I had a conversation with a founder friend turned investor. We discussed the strategy described above and tried to answer this question: “Is there a correct approach to early-stage investing?” I know successful investors who have used a methodical style like this one and others who have totally different styles. Like other things in life, I believe investing styles are a bit like personalities. There is no right or wrong style in the abstract—the right style for an investor is the one that works for them. Everyone has different risk tolerances, horizons, etc. Imitating what has worked for someone else may not work for you. Each person must figure out the approach that’s true to them, test it, and adjust (if necessary) as they learn.
I’m looking forward to learning and refining my own investment style.