Chamath Palihapitiya: Once I Understood This About Investing, My Life Changed

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Once I Understood This About Investing, My Life Changed.

Chamath Palihapitiya. Duration: 15 min

Timestamps

  • 0:00 Building a compound interest table
  • 2:02 The risk curve and taking responsibility
  • 2:36 Learning from Bezos and Elon the hard way
  • 4:52 Investing in what you love
  • 7:14 Tax-loss harvesting as a backup plan
  • 8:24 Get rich slow
  • 10:32 Knowing your goal and the barbell strategy
  • 14:06 Just start and tell nobody

Chamath Palihapitiya (early Facebook executive, Social Capital founder, former Warriors owner) gives the rawest investing advice I have heard in a while. He walks through his own mistakes (the time he ignored the two best capital allocators in the world and torched $5 billion), and the frameworks he uses instead.

  1. Build your own compound interest table before you buy anything. Chamath says he built one for an athlete who just signed a giant contract. He took the salary, subtracted taxes and fees, and showed him what it would look like at 7% over 30 years. The athlete’s mind was blown. Then Chamath backed it off to 1/1000th of that starting number, and his mind was still blown. “Even with the most meager of beginnings,” Chamath says, “you can post huge numbers if you focus on a systematic process over 20 and 30 years.”

  2. Know exactly where you sit on the risk curve or stay out. “The further out on the risk curve you are, the odds are that there’s the risk of capital loss,” Chamath says. “And if you don’t know where you are out on the risk curve, you shouldn’t be there. Take your money, stick it into an index fund, just go home. This is a tough game, and most people lose at this game.”

  3. Here is the mistake that cost him billions. In November 2021, Chamath saw Jeff Bezos and Elon Musk start selling their stock. He says he thought to himself, “These guys are the two best capital allocators in the world today. If they’re selling, I should sell.” He sold a little but not nearly enough. By March 2022, the Russia-Ukraine war started, the market tanked, and his SPAC positions got obliterated. His honest diagnosis: he had confused his growing fame with growing skill. He was too afraid to tell everybody to cut to cash. Now his rule is: when someone structurally smarter than him does something against his positions, he immediately asks, “Prove to me why I shouldn’t do the same.”

  4. Your first investment should be a product you love and use. He tells this story every time someone asks him how to start: on vacation with his two sons, they won a few hundred dollars betting on golf. The older son said, “I like the price action of Virgin Galactic”. He blew the $200 in, made $3,000, bought a computer, and never returned. The younger son said, “I like Xbox, PlayStation, and Nintendo”. He bought all three, compounded at roughly 30% over the next three years, and is still in the game. Chamath’s rule: “Look around you at the products that you love, that you think are incredible, that are well-made. Find out who makes those things and see if that company is public.”

  5. US tax code makes your losses a backup plan. Chamath says most investors do not know that capital losses carry forward indefinitely in the US, offsetting future gains with no expiration date. “When you lose money (not if but when), take the time to understand why: were you too greedy, too short-term, did you misjudge the risk? All that money will come back to you if you course-correct.”

  6. Investing is a get-rich-slow game. “Every time that people want get-rich-quick schemes, they stop thinking for themselves, they start looking for answers from others, they invariably blow up, and then they blame others,” Chamath says. “Don’t do that to yourself. You are responsible. Do not make decisions you cannot justify as your own decisions.”

  7. The barbell strategy lets you take big risks without going to zero. Chamath frames his whole portfolio as a barbell: most of his capital sits in concentrated, asymmetric bets on technology. On the other end, he hedges with cash and uncorrelated assets. The most uncorrelated thing he could find? Professional sports. He bought 10% of the Golden State Warriors for $25 million, later sold for $500 million. But he says the investment would have been worth it even at zero appreciation because it gave him “the mental freedom to go and build my investing chops in technology.”

  8. Just start. Tell no one. The only people who care how much you start with are other people, and they care because it makes them feel better about their own decisions. “What’s $50? What’s $100? To others it seems meager and not worth it.” Chamath’s advice: start anyway, keep your mouth shut, and “show up 10 or 15 years later with a huge war chest and shove it up their ass.”

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