Peter Thiel – founder of PayPal, his book Zero to One is regarded as a must read for aspiring entrepreneurs, but I would recommend this book for wannabe investors too. The book has been in my Amazon shopping cart for sometime; but I had a nagging feeling that we had this book in the house, I had seen the bright yellow paperback somewhere in the cupboard📙. And I was right, it was bought by hubs and finally found in the deep recess of the book cupboard. A bit too late I felt after reading the book; should have read it much earlier (published in 2014); a brilliant book !!
There is valuable advice for entrepreneurs but I liked the investment advice more. While he describes the qualities that make a successful start-up, the same principles can be applied to selecting a thoroughbred company to invest in for the long run. There are parallels between his advice and Buffet’s advice while picking stocks to invest in. Buffet is a firm believer of investing in monopoly businesses and stays away from commodity business where the company does not have pricing power and Thiel advices the same. “If you want to create and capture lasting value, don’t build an undifferentiated commodity business.”This book is unique in bringing the technology focus which has become a cornerstone for companies today and in decades to come.
He sums up with these lines beautifully – ” Tolstoy opens Anna Karenina by observing: All happy families are alike; each unhappy family is unhappy in it’s own way. Business is the opposite. All happy companies are different, each one earns a monopoly by solving a unique problem. All failed companies are the same; they failed to escape competition.”
My biggest takeaway from the book is the investment advice from the author to venture capitalists as they decide on which start-ups to invest in and build their portfolio. The author says ” We don’t live in a normal world; we live under a power law.” The power law is simply the 80-20 rule or the power of compounding or exponential growth.✨
“Monopoly businesses capture more value than millions of undifferentiated competitors “– 80-20 rule.
All investors hold a diversified portfolio, hoping the outperformers will make up for the duds – “spray and pray” approach as per Thiel and he compares this to buying a lottery – “you have already psychologically prepared yourself to loose.” While this attitude may help us sleep better at night after investing in stocks, considering the capital as sunk cost; manifold returns remain a distant dream.
Thiel advises on a portfolio approach rather than putting all your eggs in one basket – but says ” Every single company in the portfolio must have the potential to succeed at a vast scale.” Be very selective, choose only the best. Buffet also echos this when he says, consider you portfolio like a card on which you are allowed to punch only 20 holes; you wouldn’t want to punch in if you are not fully sure.🎯
“The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined.” says Thiel. And for this you need to put in more money than just some spare change which you know you can afford to loose and hence don’t consider a big deal. But you have to make it a big deal and that is possible only by making focussed choices. Easier said than done 😆!!
Thiel dispels many popular notions in this book and one I liked is how to decide on a career – ” It doesn’t matter what you do as long as you do it well.” That is completely false. You should focus on something you are good at doing, but before that you must think hard about whether it will be valuable in the future. When you choose your career, you act on your belief that the kind of work you do will be valuable decades from now.🎓
What is the meaning of the title zero to one? What are the characteristics of a monopoly? What are the prevalent social trends that prevent contrarian thinking? Answers to all these interesting questions and much more in the book. A short read less that 200 pages and well worth the time.
Enjoy the weekend and we will catch up next week.🌺🌺
Till next post, take care !!