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ChristianKl comments on A Guide to Rational Investing - Less Wrong Discussion

27 Post author: ColbyDavis 15 September 2014 02:36AM

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Comment author: ChristianKl 15 September 2014 12:29:49PM 1 point [-]

I think that people with tech insider knowledge in places like Silicon Valley might benefit from going for angel investment in valuable companies than investing in stocks.

Angel investment allows you to invest in companies that you think improve the world while buying stocks of most corporations where the effects of your investment aren't clear.

Others include the small-cap premium (small company stocks tend to outperform large company stocks even in excess of what should be expected by their risk)

If small companies outperform large ones investing money via Angel investment in really small companies seems to be preferable to investing money in companies that are big enough to be traded on the stock market.

I think it's much more likely that there are huge inefficiencies in the Angel investment market than in the stock market. Smart rational people can't compete with big banks who have complex trading algorithms when it comes to picking stocks. On the other hand they can compete at being better at evaluating small startups that are to small to be of interest to banks.

Comment author: pcm 15 September 2014 06:38:21PM 2 points [-]

Angel investing is not like buying small publicly traded stocks. Transaction costs cause some of the better startups to refuse to deal with small Angel investors. The obstacles to becoming publicly traded weed out some of the worst startups.

Comment author: ColbyDavis 15 September 2014 08:04:30PM 4 points [-]

I completely agree and would add that just because you know a lot about tech does not mean you are qualified to identify angel investment opportunities. Knowing a lot about accounting is probably just about as important. David Swensen, portfolio manager for the Yale endowment fund, and probably the most successful venture capital investor in the world, constantly stresses that only the top 10% or so of private equity funds have posted returns that have beaten small cap indexes and justified their costs and risks, and you're only going to have access to the top 10% of these funds if you have billions of dollars to work with.