This is the fourth in the series of posts that outlines the companies I’ve invested in, and why I picked them. My goal is to reach 100 early stage investments by January 1, 2018. The previous posts are listed below:
Company #4: Terrafugia
What Does It Do?: They build flying cars.
Way To Think About It: Think about a car. Then imagine it flying.
Year Invested: 2013
Amount Invested: Less Than 25k
How I Found The Deal: WeFunder (their profile)
Why I Invested: I’m not going to bullshit you with rationalizations about the upside of this company. I mean, don’t get me wrong, there are plenty of legitimate reasons to be excited about the possible financial return on a company like Terrafugia. But that’s not why I invested in them, so I’m not going to sit here and come up with justifications that weren’t there when I made my decision.
I’ll be even more honest: I did less due diligence with this investment than with any I’ve ever made. And not by a little bit. I think I did more due diligence on the Ikea desk I bought last week than I did with Terrafugia. All I did was make sure they were a legit company, that their prototype worked, that they had real investors backing them, and that this was all above board and serious. Once I knew there was no fraud involved, I was in. And that’s ALL I did. I didn’t even look at the financials.
So why did I invest?
Are you joking? THEY MAKE FLYING CARS!!!! What else do you need to know????
This is not just a cool idea. It’s a real thing that actually works. They have a goddamn working prototype of a flying car, you can watch in this video.
Granted, I only invested a very very small amount, so it’s not like I dropped 50k because I saw a video. But as to the decision process I used when I made this investment, that’s the legitimate and unvarnished truth: Because flying cars.
Lessons I Learned: This is still a new investment, but I think there are actually a lot of lessons that can be taken from this. Here are two:
1. Don’t pretend that decisions are rational when they aren’t; embrace the emotion: Look, as soon as I saw the profile for Terrafugia, I KNEW I wanted to invest. There’s no possible fucking way that decision process has ANY defensible basis in rationality, facts or deliberation. I can’t even say that I considered and weighed all the variables. So why pretend? I accepted the fact that on a deep, emotional level, I WANTED to invest in a flying car company.
So why did I know immediately? The honest answer is that things like social status matter immensely to humans (like me), even though we pretend that they don’t, and I felt (unconsciously, obviously) like this would convey that status. People will do amazing mental gymnastics to convince themselves that something they did for no other reason than pride or ego or something like that is done for a real reason. BULLSHIT! Stop doing that to yourself. I am not doing it here: I fully admit that the real reason I decided to invest in Terrafugia was because I wanted to be able to brag about being one of the first investors in a flying car company.
Most people don’t do this in investing; they make their decision emotionally, then trick themselves into thinking that the decision was made based on facts. They rationalize the evidence to fit the belief they already have–just like Republicans and Democrats do when talking about politics. What I’m about to tell you is not standard behavioral finance theory, but I think it will eventually be: Accept your irrational snap judgements, because if you try to rationalize them, they only get worse. Then you compile losses because you THINK you have a factual reason for the decision, instead of recognizing it is an emotional reason.
2. If you are making an investing decision for non-rational reasons, limit your downside: Because I knew I wanted to invest in a flying car company–which basically precluded me from seeing this investment rationally–I did the only smart thing possible: I invested a tiny, tiny amount that I was basically OK with losing.
Of course I made sure this was a legit company with a legit product, but I knew if I spent time studying everything I would just lie to myself more, and then maybe end up investing a lot more money, and then compounding my mistake.
I approached this the same way I approached gambling in a casino: I take only the amount of cash in with me that I am OK with losing, I assume it’s lost already when I walk in, and then I just have fun. Up or down, doesn’t matter, because mentally, that money is in the “entertainment expense” file. That’s how I account for the investment: As an expense of my emotional desires.
This way, no matter happens, I’m OK. The investment fails, OK fine, I still get to say I invested in a flying car company, I still get the subjective emotional pleasure that brings me. If the investment works, and I get to feel that, PLUS I get a bunch of money. Win-win.