What should your goal be in investing, be it in startups, stocks, commodities, real estate or otherwise? Your number 1 objective is to make money. That’s it. Sounds obvious, but we as humans are highly emotional irrational creatures and make decisions based on emotion rather than logic. For example, the average person when making a decision, makes it based 90% in emotion, and only 10% in logic. It’s also been shown that the more logic a person uses in making a decision, the more likely they are to make a better, more optimal decision. Wow, that means, most of us are pretty bad decision makers, and in looking in hindsight, if we are truly honest with ourselves, our decisions are guided by nonsense emotions, psychological fallacies and or other opinions that have nothing to do with the investing decision itself. Let’s look at some of the common unconscious beliefs and values we have that guide in investment (and in life) decisions that not only don’t have a positive effect on the outcome, but maybe even negative. As a disclaimer in our cancel trigger happy culture, the below may offend you and cause you emotional trauma.

Go woke, go broke

Marc Andreessen from Andreessen Horowitz has mentioned they do not make investment decisions based primarily on demographics. Imagine investing your life savings into either a startup or stock on the basis of some random demographic of the CEO in charge. Absolutely baffling. A serial entrepreneur who has had multiple previous successful companies with high valuation exits and/or IPOs and raised millions and millions previously from tier 1 firms is more likely to succeed than a first time founder who has had no track record of success of any kind in any field. Why would someone’s religion, height, weight, age, race, sexual orientation, country of origin, skin color, etc, be a consideration? We may be falling at risk of familiarity bias here. Just because the CEO or founder looks like you, came from the same background as you, seems like you or someone you know that you like, doesn’t mean that they are all of a sudden a better steward of entrepreneurship and capital returns on investment. In many cases, investment decisions may actually underperform by assigning a false higher value on competence when we involve demographics. We should be looking at genuine indicators of competence, like whether the product or service is outstanding, if there is product market fit, if there is explosive revenue growth, etc.

Now I want to be clear, the statistics firmly show a disproportionate amount of capital raised and startups founded by specific demographics of people, that are not commensurate with the % demographic breakdown in the overall population. Looking at the US, the vast majority of startups funded are given to founders that include one, or in many cases, multiple qualities of:

-education, namely university educated, and from a top brand name school, typically Ivy League

-a person who already had strong connections to the industry, giving them a head start in the bootstrapping phase

-typically male

-age range spans the middle of a person’s lifespan

-ethnically, typically Caucasian

-sexual orientation, typically straight heterogenous

Taking the above into account, that does not mean you blindly invest in any person that fits this demographic, nor does it mean you look for someone that doesn’t meet this demographic. Putting money towards someone who looks like you or is part of a minority as a means of some sort of social justice does not actually increase the odds that you will strike it rich. It’s certainly possible that a person in the minority may have something to prove and worked harder to get where they are, and could have the trait of being more resourceful than people who were born with the “golden spoon”. In that situation, consider the actual contents of the founder and the results they have produced thus far. If the product is good, the product market fit shows warm reception and blazing growth, and can change peoples lives for the better, then by all means go ahead.

Politics

The internet was thought to have provided more information access to people, and thus lead to more open minded and well-informed citizens. However, we’ve now found that people have become increasingly close minded despite the higher access of information. Why? Because people use confirmation bias and read only what already supports pre-existing beliefs. Pertaining to politics, this has led to more stubbornness in one’s position, and a closed mind towards any alternatives that are different. This has led to more division in the US, even going so far as to view people with different views as “on the other side”. What’s more baffling financially is the propensity for people to actually use that as a decision maker in considering what investments to make. Imagine while doing research and due diligence, choosing to not invest in a company simply because the founder has political views that differ from yours. So if the founder chose to invest differently from you, but was the founder of the next Uber, Airbnb, Instacart, ChatGPT, etc. Now making the decision to pass up on lifechanging money based on a simple political difference? It is likely you will never meet the founder in any capacity. I am not sure how one can throw away financial fiduciary responsibility to themselves and loved ones, in the name of trying to make an anonymous righteous statement that no one is going to know about. Investing is for investments, not politics.

Personality

Just because the person does not have a personality that you like, doesn’t mean they don’t know what they are doing. Jason Calacanis described Robinhood cofounder Vlad Tenev when meeting him the first time as a quieter introvert and the meeting was short, only ten minutes with not much words exchanged. If you watch the interview online of a quieter introvert, you may be less than enthused compared to the larger than life, charismatic, outgoing, charming types. Again, one’s personality does not actually dictate competence. Even though one could make the argument that these types may be more likely to be viewed favorably by investors and thus be able to get more funding for their company. But with incompetence management in place, this would only lead to the company delaying the inevitable for a longer period of time. We seem to fall prey to attractive people who are socially outgoing, and in fact, this can make it more likely to be duped by these types. For more, see the vast amount of scams in cryptocurrency, and fallouts from Theranos, FTX, Frank, and more.

Conclusion

Those were just 3 examples of the various subconscious biases that we hold that mostly negatively alter our decision making in investing and in life. By avoiding these as much as possible and coming from a clear rational perspective, that will only help our financial future in the long run

Disclaimer

This is not Financial Advice. This article is meant only for educational and perhaps entertainment purposes.