Bulls make money. Bears make money. Pigs get slaughtered

Bulls make Money. Bears Make Money. Pigs get slaughtered.

Netflix Co-Founder Marc Randolph has recently shared this old Wall Street Expression to introduce his Risk Mitigation Approach to Investing.

If you practise Active Investing, Marc’s strategy is gold!

Ever since my first job in Silicon Valley, I’ve always cashed in some stock options as soon as they vested (if possible).

The way I saw it, if the stock kept going up, I’d have plenty of unvested shares to ride the wave. And if I did a good job for the company, I’d keep getting more. But if the stock went down—or the company folded—better to have taken something off the table than nothing.

At Looker, Lloyd Tabb and I were both 99% certain that the company was going to be a winner—but we still sold secondary shares into every round. Because 99% isn’t 100%, and there’s no such thing as a sure thing. That’s why every financial analysis includes the phrase “past performance is not indicative of future results.”

So while Lloyd and I couldn’t be certain about the company, we were confident in our math. If it really took off, then having 5% more shares to sell would make no meaningful difference. But if things fell apart, then taking 5% of our holdings off the table would look awfully smart.

When my son’s first company was acquired in 2015, I pleaded with him to sell off some of the stock he received in payout. He called me “chicken little.”

A few years later, a corporate investor offered to take us out of 50% of our investment in a hot fund. I argued that we take it, cover our costs, and still have plenty of upside. He called me a “Debbie Downer”.

He doesn’t call me either of those things anymore.

When it comes to investment, I’m not glass half-full or half-empty—I’m just a realist. I try not follow the herd. When times are great, that means not getting swept up in irrational exuberance; when they’re tough, it means looking for opportunities everyone else is missing.

Entrepreneurship and investing are cyclical games, perfectly suited to those willing to think for themselves (and stomach the consequences).

But whether markets go up or down, there’s always an opportunity to do well. Just don’t be greedy.

 

Bottom line

Don’t forget: Bulls make Money. Bears Make Money.  Just keep Sweating Your Assets!

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