Avoiding the "Oh, S#*t!" Investment

By Matthew Milner, on Wednesday, June 8, 2016

There’s an expression in the private markets…

It’s called the “Oh, S#*t!” moment.

As one prominent investor described it, “That’s when you learn all sorts of things that you wish you’d known [before] writing a company that first check.”

In other words, it’s when you realize you shouldn’t have made the investment.

Now that everyone can invest in the private markets, we imagine there will be a lot more of these moments—especially for first-time angel investors.

That’s why, today, I’m going to show you something very important:

It’s the only proven way to help avoid the “Oh, S#*t!” moment.

An Eye-Opening Study

One of the largest non-profit “think tanks” in the U.S. is called The Kauffman Foundation

Established by entrepreneur and philanthropist Ewing Marion Kauffman, the $2 billion foundation aims to further the study and practice of entrepreneurship.

Several years ago, the foundation embarked upon an ambitious project: it aimed to conduct the largest and most thorough study of early-stage investing in history.

To build its data set, the study’s authors gathered results from 539 individual private market investors and over 80 investor groups. In total, they evaluated data from over 1,100 individual investments.

Some of these investments were wildly successful. Others failed.

But on average, the study concluded that, historically, private market investors earned returns of 27% per year.

To put that in perspective, 27% per year is roughly four times higher than the historical returns of the stock market…

It’s approximately 20% higher than Warren Buffett’s historical returns...

And it’s enough to double the value of your portfolio every few years.

With 27% returns, you could turn a $10,000 stake into $20,000 in about three years.

In 10 years, it would grow to more than $100,000….

And over the course of 20 years, that $10,000 stake would turn into $1.2 million.

But Don’t Forget About the “Oh, S#*t!” Moment

The study proves that investing in early-stage companies has the power to turn nearly anyone into a millionaire.

There’s just one caveat:

You need to know what you’re doing.

You see, many early-stage companies don’t work out as planned. In fact, the vast majority of them fail. For angels, that could create a lot of “Oh, S#*t!” moments.

That’s why The Kauffman Foundation took their research a step further…

As part of its study, the foundation decided to analyze why some investments turned into “winners,” while others became “losers.”

And what they discovered is the key to making consistent profits in the private markets.

Time = Money

The study’s authors asked each investor how many hours of research he or she performed for each investment. The study then looked at the investment outcomes.

The results are enlightening:

Simply put, the study found that the more time you spend researching an investment, the higher your returns. 

Specifically, the study found that investors who spent less than twenty hours on research had average returns of 1.1x. In other words, they barely broke even.

Now compare that to investors who spent more than twenty hours on research:

On average, those folks earned 5.9x their money. Those are great returns—but some people did even better:

Investors who spent more than 40 hours on research earned 7.1x their money.

The data doesn’t lie. The “secret” to making consistent profits in the private markets boils down to how many hours you devote to researching each opportunity.

But I know what you might be thinking:

Who has time to spend 40 hours researching every investment opportunity?

Don’t Worry, We’ve Got You Covered

Early-stage investing can change your life and fortunes.

But what you learned today might be intimidating:

40 hours of research is a lot—especially when you multiply it by the dozens of investment opportunities you’ll need to review.

But don’t worry:

You don’t have to do this research yourself.

In the coming days, we’ll show you how to “hire” an entire team of financial analysts to do it all for you.

And the best part is, you can hire this team at almost no cost.

For more details, keep an eye on your e-mail tomorrow at 9am Eastern.

Best Regards,
Matthew Milner
Matthew Milner


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Tags: Kauffman Study

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