Smart Money Co-Investment Rules

James Altucher shares his key investment strategy that helped him succeed in private investing after multiple failures. The core principle is to minimize risk by investing alongside smarter investors and maintaining strict position sizing.

Core Investment Philosophy

• Risk management is the most important aspect of investing (whether time or money)
• Never be the smartest person in the investment room
• Position size matters more than picking winners
• Focus on private investing over public markets

Key Risk Management Rules

• Maximum investment size: 1-2% of net worth per company
• Let winners run without selling (like Warren Buffett's Michael Jordan analogy)
• Always invest alongside smarter, more experienced investors
• Must get same investment terms as the lead investors

Smart Money Strategy

• Outsource due diligence to more experienced investors
• Follow successful investors in their domain expertise
• Examples:
  • Followed Peter Thiel (Facebook founder) into Buddy Media
  • Co-invest with domain experts (e.g., biotech founders with previous exits)
• Success rate approaches 100% when following this strategy

Red Flags

• If company calls for advice, mark investment value as zero
• Never invest more if they reach out for help
• Reaching down the "totem pole" for advice indicates trouble
• Don't try to be an expert in unfamiliar industries

Notable Wins Using This Strategy

• Buddy Media: $4M to $700M exit
• Ticketfly: Seed round to $450M exit
• Wrap Technologies: Public company success
• Multiple private companies still growing 50-200% annually

The strategy allows successful investing across diverse industries (tech, biotech, law enforcement) without needing deep domain expertise in each field.