Original Chinese Version, on 2013-07-05 : HERE
Today’s topic is the first lesson in angel investing – independent decision-making!
This principle is so simple, but I emphasize it on the first day because most people are unable to make decisions independently, especially when it comes to investing. In fact, one of the most common questions before making an investment decision is “Who else has confirmed their investment in this project?” If the confirmations come from influential figures or peers, it naturally boosts one’s confidence.
Humans tend to exhibit herd mentality to some extent, which is not surprising. However, I believe that 90% of people have a serious herd mentality when it comes to investing, and maybe only 10% can make independent investment decisions without being swayed by others. The influence of others includes but is not limited to:
If person A invests, so will I.
Why didn’t person B invest?
What is person C hesitating for?
Why did person D back out suddenly?
Why did person E invest such a small amount?
Why does person F want to exit this round?
Why is person G betting all their assets?
This information should be understood, but it should come after your own investment decision, not before. This means you need to have your own standards, principles, and basis for decision-making, which should be based on your investment goals, financial strength, and professional background. How others view and decide on a project should not influence your decision-making process. This information should be for your information (FYI) only after you’ve made a decision, not a data input in your decision-making process!
Take a simple example: if a prominent investor A invests $10 million in one project, and a less influential person B invests $500,000 in another, which do you think is more reliable?
If you think A’s project is more reliable, that’s incorrect because in reality, investor A might just be using the $10 million as pocket change to support someone who had been kind to them in the past.
If you think B’s project is more reliable, that’s also incorrect because even though person B is investing all their savings, it could be due to overconfidence, and just because they’re willing to gamble doesn’t mean it will succeed.
So, which is more reliable, A or B?
In reality, neither—it’s a trick question from a joke about a man named A who is testing his three girlfriends by giving them money to see how they would spend it. It’s a cold joke suggesting he chose the girlfriend with the biggest chest, regardless of their actions.
Do you understand the lesson of “independent decision-making” now?