Buffett vs. VC Investing

Shaan Puri explains the fundamental difference between Warren Buffett's investment approach and venture capital/tech investing, highlighting how each strategy works in its appropriate context. He emphasizes that optimism in tech investing leads to wealth, while cynicism merely leads to being right.

Key Points:

• Two Valid But Opposite Investment Philosophies:

  • Warren Buffett's approach: Predicting the future will repeat itself
  • VC/tech investing approach: Betting 100% that the future will be different from the past

• Each Philosophy Works in Its Proper Context:

  • Buffett's approach is right for stock market and value investing
  • Buffett's rule: "Don't lose money"
  • This approach also works well in private equity

• Tech Investing Requires the Opposite Mindset:

  • "In entrepreneurship or tech investing, [Buffett's approach] is absolutely the wrong way to think about things"
  • "You won't make any money doing that other way"
  • VCs and entrepreneurs lose money all the time, unlike Buffett

• The Hits-Driven Nature of Tech:

  • "It's a hits-driven game so you only need one"
  • "You can actually be wrong eight or nine times out of 10 as long as you get the one right in a really really big way"
  • This doesn't work in other contexts like school or traditional jobs

• Optimism vs. Cynicism:

  • "In our business, the cynics get to be right and the optimists get to be rich"
  • Cynics are right 8 out of 10 times, which might feel good
  • Optimists are the ones who get rich
  • "You have to just know that going in"

• Market Sizing Mistakes:

  • Traditional market sizing often underestimates disruptive technologies
  • Example: AT&T's $12 billion mistake by missing the cell phone market
  • "Sizing the market for a disruptor based on the incumbent's market is like sizing the car industry based on how many horses there were in 1910"