Momentum is a Drug, Value is in The Eye of the Beholder and Certainty is Death

  • Posted by
  • on November 21st, 2010

Based on my investing philosophy and style…I like drugs, I trust certain eyes as it pertains to value and I run from certainty.

It has not always been that way.

Certainty used to be my drug. Not the certainty that Barry Ritholtz describes:

Want some certainty? Go buy yourself Treasuries. You can pick up a very lovely two-year bond yielding 0.41 percent. (Good luck charging two and 20 on that!)

Now that I have invested, traded, won and lost, I have the scars to have built a style and philosophy that helps me pace.

Fred Wilson wrote about Pace today as well. The last few weeks Fred has been trying to message his behavior concerns in the venture space. The media wants everything in black and white. Bubble or Depression. Fred has been taken out of context to be placed in the bearish and bubble camp so he clears it up on his own blog.

So when I look at where we are right now, it reminds me so much of 1999 and frankly it scares me. But we are not pulling back. We are sticking with our investment strategy and putting out cash and adding new names to our portfolio. But we are doing it with a very close eye on pace, both in terms of names and cash outlays. I think that is the right approach and that it will serve us well as we navigate the tricky waters we find ourselves in.

In 2005, there were many cautious voices on behavior in the mortgage markets and they were scoffed at. It took 3 more years for the implosion.

As Barry Ritholtz says, ‘Kiss your assets Goodbye When Certainty Reigns‘

After great market runs like we have had with web and software, I would agree with Fred when he says ‘Pace Yourself’. Choose pitches wisely. Take the best stock entries that fit your style and maybe less of them, and above all stay in the game. The last few weeks on my blog, I have pretty much preached the same thing. I have been selling stocks, but still looking for a few entries from the Stocktwits50 each week.

Just two years ago their was CERTAINTY in the venture markets. It was handed down by one of the GODS of Venture Capital – Sequoia Capital – and the tablets read ‘RIP Good Times’.

If you are serious about investing you must flip through slides 31-55 and see how wrong smart people can be when they are certain. Today, many of Sequoia’s chinese investments are in IPO nirvana and they are funding US startups with $25 million B and C rounds (a style they said was not coming back) that have no revenue.

Once again a quote from Barry:

Pundits may hate uncertainty — it tends to makes them look foolish — but markets harbor no such bias. In fact, markets thrive on uncertainty. It is their reason for being.

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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