Investment Game Rules

Different investment games have distinct rules, strategies, and success metrics. Understanding which game you're playing is crucial for success.

Types of Investment Games

• Trading Sardines vs Eating Sardines
  • Trading sardines: Assets bought to sell to next buyer at higher price
  • Eating sardines: Assets that produce cash flow and have inherent value
  • Key lesson: Know which type you're buying

Venture Capital Game

• Success metrics focused on outliers
  • Only 20-30 companies matter each year
  • Expect to lose money 8 out of 10 times
  • Returns driven by getting into the few breakout companies
• Investment timeline
  • Must chase to find breakout companies
  • Then wait 7-10 years for seeds to bloom
• Contradicts Warren Buffett's rules
  • Can't follow "don't lose money" principle
  • Different game requires different rules

Cash Flow Business Game

• Focus on operating cash flow over profit
  • Profit is a hypothesis, cash is fact
  • Example: Enron showed profit but no operating cash flow
• More predictable returns
  • Steady but smaller returns vs lumpy big gains
  • Less dependent on external factors
• Currently in favor as markets shift
  • Moving away from growth at all costs
  • Emphasis on sustainable business models

Collectibles Game

• Non-productive assets
  • Art, watches, gold - don't produce cash flow
  • Value based on scarcity and demand
• Historical precedent matters
  • Rolex watches: 50+ years of consistent demand
  • Crypto: Limited history of sustained value
• Market efficiency varies
  • Established markets more efficient
  • New markets (like NFTs) offer bigger opportunities

Key Investment Principles

• Know which game you're playing
  • Different games have different rules
  • Can't apply rules from one game to another
• Understand your control level
  • Direct control: Starting/selling companies
  • Indirect: Public market investments
• Portfolio allocation
  • Don't put too much net worth in speculative assets
  • Match investment type to risk tolerance