http://www.sportingnews.com/sport/story/2013-04-30/kentucky-derby-2013-hats-style-date-post-time So as I walked home from the gym this morning, I couldn’t help but notice all of the crisp, bourgeois ensembles and boisterous brims; yep, there's a horse race today. I'm poking fun, but I think it is kind of nice to embrace traditions and pull that otherwise comical hat of the rack. Today, the occasion is of course the Belmont Stakes!
I started thinking about the parallels between horse betting and betting on an idea or a company. As I write this post, the odds at 5:45 pm EST for the Belmont Stakes are:
ROI: = (Gain from investment - cost of investment)
cost of investment
ROI American Pharoah: (8-3)/3 = 167%
ROITale of Verve: (19-1)/1 = 1900%
So even though American Pharoah is the favorite to win, you will be more profitable if you bet on a horse that others did not expect to win, but only if it does indeed win. This is very similar to an investment theme: gambling on good ideas that are not obvious to others. I watched the recent Columbia commencement speech by Ben Horowitz and he hit upon the same vein: having a great, obvious idea - ie a cellphone battery with longer lifetime - is not that instrumental to you, the inventor, or to the investor. Why? Everybody else has the idea, and likely, many of these players are much more equipped with the resources, history, and funds to do a better job than you can in developing that relatively obvious idea.
However, there is huge potential in good ideas that aren't blatantly brilliant to others - ie. renting out a mattress in your apartment (hint.. AirBnB). As the founder, you get a leap on the competition because you understand a problem more deeply and can address it more fully than any tardy adversary that jumps in. And as an investor, this idea is more like Tale of Verve; yes, you are taking a risk by gambling in this idea that has a high likelihood to fail, but if the idea succeeds, you've hit a jackpot. Because of the elevated risk associated with a risky idea versus a safer one, an investor likely also takes on a larger equity stake, which they can do because there is not a plethora of investors lined up to partake in this uncertain endeavor.
I started thinking about the parallels between horse betting and betting on an idea or a company. As I write this post, the odds at 5:45 pm EST for the Belmont Stakes are:
- Mubtaajij: 15-1
- Tale of Verve 18-1
- Madefromlucky: 14-1
- Frammento: 19-1
- American Pharoah: 3-5
- Frosted: 9-2
- Keen Ice: 15-1
- Materiality: 7-1
ROI: = (Gain from investment - cost of investment)
cost of investment
ROI American Pharoah: (8-3)/3 = 167%
ROITale of Verve: (19-1)/1 = 1900%
So even though American Pharoah is the favorite to win, you will be more profitable if you bet on a horse that others did not expect to win, but only if it does indeed win. This is very similar to an investment theme: gambling on good ideas that are not obvious to others. I watched the recent Columbia commencement speech by Ben Horowitz and he hit upon the same vein: having a great, obvious idea - ie a cellphone battery with longer lifetime - is not that instrumental to you, the inventor, or to the investor. Why? Everybody else has the idea, and likely, many of these players are much more equipped with the resources, history, and funds to do a better job than you can in developing that relatively obvious idea.
However, there is huge potential in good ideas that aren't blatantly brilliant to others - ie. renting out a mattress in your apartment (hint.. AirBnB). As the founder, you get a leap on the competition because you understand a problem more deeply and can address it more fully than any tardy adversary that jumps in. And as an investor, this idea is more like Tale of Verve; yes, you are taking a risk by gambling in this idea that has a high likelihood to fail, but if the idea succeeds, you've hit a jackpot. Because of the elevated risk associated with a risky idea versus a safer one, an investor likely also takes on a larger equity stake, which they can do because there is not a plethora of investors lined up to partake in this uncertain endeavor.
Now ideally, betting on these dicey schemes is less like gambling, and more like crafting and cultivating expert insight research to identify diamonds in the rough. And this is why I've been able to secure some equity research interviews; potentially my doctorate in biomedical sciences has given me unique exposure and experience to better understand and seize upon biotech investment opportunities that perhaps others have missed.
As I finish this post, American Pharaoh won! The lesson is reinforced: you can't compete with the best in the business and win (right away anyway.... to end on a positive note :)
Sources:
As I finish this post, American Pharaoh won! The lesson is reinforced: you can't compete with the best in the business and win (right away anyway.... to end on a positive note :)
Sources:
http://www.billiondollargraphics.com/riskmatrix.html
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