Ask HN: Getting Started Investing
I, like probably most of the people here, want to someday build a product and sell it. But, until I can come up with an idea I believe in I would like to invest in other people's ideas. I'm a well paid independent consultant and have $100-150K yearly profits that can be used for investments.
My problem is getting in touch with startups to invest in. Investing through AngelList, but I unfortunately do not (yet?) meet the requirements to become an accredited investor.
Is $100-150K yearly enough to get started? Do I have the "buy in" necessary to join a fund?
Any real life advice on how to get started would be greatly appreciated. I'm based in western Europe btw.
99 comments
[ 2.1 ms ] story [ 196 ms ] threadAt your level of available funds, investing in startups is gambling, because you can’t spread your bets widely enough to hedge them and increase the likelihood that gains on one will make up for the losses or break-even on the rest.
If you want to invest, I recommend index funds.
1) never take a position that can wipe you out, and 2) shut up and wait
Steady accumulation will achieve most things for most people if you can handle the fact it's not exciting and you won't get to feel like an important investor guy. If so, there's your best bet.
This. I've gotten this question from family, and the answer's just pair VTI and BND at some ratio you're happy with (or buy a target date fund) and wait.
That ratio needs to be tweaked at least monthly maybe bimonthly through the rest of this year (lots of uncertainty coming up)
I completely agree that we're in a weird time. A few weeks ago, there was a bad economic report and the market rallied because it assumed that made it more likely the Fed would cut rates. I get it, but it's also absurd, and by reductio ad absurdum, the Fed alone can't power the economy.
There have been rumblings that volatility is probably underpriced (options almost always imply less downside risk than there really is, anyway), especially in the political climate with Iran and Brexit and the economic climate of a US trade war with China and--now--France.
On the other hand, money is cheap, you gotta put it somewhere, and Vision Fund II looks like a sucker's bet.
Nobody knows what outcome you’ll get, but indexing is a solid process. That’s all you can do - maximise the quality of your process. Anything else is noise.
But keep thinking a paper giving you a title with some mixed case letters makes you a top money manager and that no one could have possibly avoided a 40% loss during 2008
Also an edge can simply be moving averages which has a proven backtest but there are a lot more analytical tools that exist today
The analogous fund for BND is VBTLX.
There are some big caveats to watch out for with target date funds like increased expense ratio vs holding the underlying funds directly and the glide path. I avoid them personally, but they're not all bad.
[1]: https://www.bogleheads.org/forum/viewtopic.php?t=116581
[2]: https://forum.mrmoneymustache.com/investor-alley/vanguard's-...
[3]: https://www.bogleheads.org/wiki/ETFs_vs_mutual_funds
Except for the fact that its top 5 holdings are in tech, and I work in tech.
https://investor.vanguard.com/mutual-funds/profile/VTCLX
https://investor.vanguard.com/mutual-funds/profile/VTSAX
What does hedging mean in startup investing? I'm used to the meaning in securities where you take an inverse position to limit losses.
Taxi industry may fail entirely? Sell puts on car max because market will soon be flooded with depreciating assets (cars) from drivers who no longer taxi. Hedge.
Hedging is not an inverse, it is protection on your original investment. A lot of the times this is simply an opposite investment such as calls to puts or puts to calls. But nothing saying you can’t protect your FB (Libra) Or JPMorgan bets by buying bitcons, etc. Hedge.
Why would you do that? When you sell puts, your upside is limited to the premium and the downside is close to unlimited (the full value of all the shares at strike price). Whereas if you were to buy calls, your downside is limited and upside is unbounded.
And FWIW, speaking in layman's terms, I would consider two long positions with opposite prospects to be inverse.
If so, did you gain experience with them? Why or why not?
I think a much bigger arbitrage opportunity, one that e.g. YC tried to exploit a lot at first, is getting people who aren't looking for money, but would actually be a good investment, to try building a startup. That's why pg wrote so much about why people should build startups - he thought (and I imagine still thinks?) that there are way more good startups that can be built, if only more people were trying to build them.
Drive Capital (ex-Sequoia) is a good example. You might be surprised how uncommon this idea still is today.
If you could buy 10% of a company for $1mm in Chicago and sell that 10% for $1.5mm in SF the next day, that would be a form of arbitrage.
From wikipedia:
> the practice of taking advantage of a price difference between two or more markets: striking a combination of matching deals that capitalize upon the imbalance, the profit being the difference between the market prices. When used by academics, an arbitrage is a (imagined, hypothetical, thought experiment) transaction that involves no negative cash flow at any probabilistic or temporal state and a positive cash flow in at least one state; in simple terms, it is the possibility of a risk-free profit after transaction costs
https://en.wikipedia.org/wiki/Arbitrage
The way I've seen the word used in startups is more akin to "Tim Ferriss style" geo-arbitrage.
https://www.physicianonfire.com/geographicarbitrage/
Please come to me with $100k and I’ll offer you simply a guaranteed 0% return (no loss on investment) so I can pad my bank account and make “real” investors interested because it makes us look like we can manage our money.
It’s all smoke and mirrors and I wish I could get access to the same cheap money big corps get. $300k at 6, 7, or 10% interest is just robbery when public companies and home owners are walking away with 2-3% APRs
What you need is to prove your idea. No one is going to put $100k (or $100 million for that matter) in an untested idea, unless you have a relationship with an investor. And investing is a relationship business.
If a friend whom I trust and I know is a talented chef comes to me with a restaurant idea, I'll consider investing. If a random person comes to me, there is <10% chance (unless his food is absolutely amazing in every regard) that I will consider investing.
I'm happy to invest in a good tech business. But most things that I see just aren't great businesses.
You're likely in the US, but many EU countries have investment entities (generally funded by EU funds) that "give out" loans at 3% APR. If you want it, you can get it done. But there are very few barriers to entry. A good idea in need of funding will find funding.
https://www.rvo.nl/subsidies-regelingen/vroegefasefinancieri...
So my options are simply do something I don’t want to do to get investors (read: become an employee again), get an SBA Loan at 9%, bank loan at 6% or remortgage my house at 2%. I shouldn’t risk homelessness for cheap money and neither should investors buy let’s get real — $100k is a monthly rounding error for them
Sure we could have a discussion about how geography shouldn’t matter, but right now being physically close to the money is an important factor.
Their startups raise crowdfunded equity rounds that you can invest in for smaller amounts without meeting the requirements for being an accredited investor.
Second, companies (hopefully) generate value and return it in buybacks or dividends.
It goes a little bit beyond your question, but Bitcoin on its own doesn't create value in the same way a company does. Investing in Bitcoin is much more like buying Turkish Lira.
More specifically, if you invest $150k per year for 15 years and get a 7% return, you'll end up with right around $4 million.
USG bonds may be a worthwhile investment over the near term. Invest less in equities right now so you can average down further and faster as the market cools. Or invest outside of the market (there is crowd funding for small businesses like nextseed)
You should read the worlds worst market timer [1]. For most people the best way is to just put all their money in stocks. Obviously not just SPY, maybe a world index, SPY and bonds. This way you can sell the bonds if the market drops and use that for living expenses, or to average out the downturn.
[1] https://awealthofcommonsense.com/2014/02/worlds-worst-market...
Most indexes have zeroed out at some point, however. War, economic collapse, revolutions, etc happen. Even if we've reached "the end of history" and these risks no longer exist (which I don't think is true), then there's still the question of valuation.
Stock markets have grown faster than GDP in both countries, and as a result, valuations are much less attractive than they were 70 years ago. Maybe the reason is because real GDP growth has slowed. Maybe it's because stocks have simply become much more popular than they used to be. Either way, I'd make index funds part of, rather than my entire strategy.
I am also bewildered that you'd think buying index funds is good in an up-economy but is bad an a down-economy. You want the diversified gain and the non-diversified loss? It seems to me that if you could somehow make accurate market predictions you'd be better off doing the exact opposite strategy.
Another important consideration is that companies now go public much later than they did pre-Sarbox. The sad truth is that a company's biggest gains are generally behind them by the time retail investors are allowed in. There will be no repeat of the windfalls ordinary investors made[1] from the IPOs of Microsoft, Walmart, Starbucks and similar companies in today's batch of new IPOs. This in itself is a good reason not to reflexively discourage someone from learning about angel investing.
> I am also bewildered that you'd think buying index funds is good in an up-economy but is bad an a down-economy.
I don't think this.
Provided long-term real-GDP growth prospects are good, I think buying index funds when the funds themselves are under-valued is a good strategy. Looking at the underlying P/E, P/B, DCF or just about any metric you choose, you'll see that on average, publicly traded stocks[1] are very expensive compared to historical valuations.
1) both directly and through funds that index them
A common pitch used to sell people on index funds involves bragging about annualized returns of stocks going back even longer than that, and comparing them decade by decade against other asset classes such as real-estate and bonds. The implicit pitch is, "Look at this upward historical trend of stock valuations. If you invest in a fund that indexes them, you too will see these kinds of returns".
Your point is good, though. Index funds never return quite as much as the underlying assets do since there are management fees. Over time, those fees compound.
If you want to deploy a few 100k, your best bet would be to invest directly into a private fund -- if you can find one that is in need of capital. One fund manager I know with a small 50m fund takes tickets starting at 100k when fundraising, for example. So X00k should be sufficient to buy in.
Which country btw? Some countries offer tax advantages to investors as well, depending on how you invest.
The transaction is much easier. You get all the risk of total wipe out you may crave. But most importantly you get a lot more information and that might help you get practice.
The most valuable practice is when you think a company has a great strategy and is a no brainer and it shuts down. Or when you do a lot of work and invest in a rocket ship only to notice that Facebook would have been a better investment.
I didn’t say penny stocks. You can try names you know and like: SMAR, SSTI, PS, etc
Usually these answers won't fit in ski well with startups as an asset class.
Also you're right. Startup investing is all about deal flow.
Otherwise read. A lot. BEFORE making decisions.
Read all of the content available on /r/financialadvice /r/investing and /r/financialindependence
I run a Dutch startup. As far as I know, all our (also Dutch) angel investors did was:
So unless I'm missing something, and if you're serious about doing high risk investing, it's just ("just") a matter of finding good startups that are looking for money.Eventually you will find the other angel investors in your area, and collaborate with them.
$100k is probably enough to build a small software product, especially if you can find a tech co-founder who is putting in sweat equity. The process of doing this will teach you a lot even if you never make back the $100k.
Otherwise, make this your full time job and make sure you have enough income to wait 8-10 years before you start seeing return.
You can also invest in a first time fund, where the manager will charge 2% management fee and 20% carry (success fee).
Getting access to entrepreneurs depends on your geography but generally if you make yourself useful to entrepreneurs, with or without investing, you can start generating dealflow.
Start with small checks, you will mess up in the beginning, so make these mistakes less painful.
Read venture deals and watch all the videos from YC investor school.
- Videos: https://investor.startupschool.org/
- Blog post: https://blog.ycombinator.com/startup-investor-school/
Unfortunately people also find this advice to be too boring and therefore usually ignore it. I expect that’s what you’ll do, too - no offence intended.
Best of luck!
You need millions of dollars, then it starts being worth it. You should listen to Martin Shkreli, even though he is in prison for fraud, because he knows more about investing than almost anybody here on HN. Most people on HN will not be able to record 1 hour video talking about investing, let alone 35+ of them. They don't have the stamina and knowledge. They also don't have the results to back up their advice, unlike Martin Shkreli.
It seems foolish to think that you can spend just a few hours per week and think you're going to beat the market.
I don't want to insult anyone, I myself don't know much about investing. The reason why I mention Martin here is because his videos on youtube are very accessible for layman people who are uninformed about the market.
Invest in the S&P 500 using an index fund, that's it. Investing in the S&P 500 is another way of investing in "the world's economy", and that will, hopefully, go up over time. And if it goes down, then at least you're not the only one who lost money so your money will be worth as much as it used to anyways.