March 19, 2012

Similarities between creating a startup and the stock market


  1. You can spend a lot of time with it - and you can still fail. When working at a startup, you can easily spend 80 hours a week trying to create a great company - but you can still fail. The same when investing/trading stocks, you can draw complicated charts, read every line in the annual report - but you can still fail. 
  2. No-one knows anything. There are many "experts" claiming they know what the next big idea is or how the stock market is going to behave the next year. The truth is: no-one knows anything. Gold may go up tomorrow and Twitter may be the next social network - but no-one can tell what is going to happen in the future.
  3. It is not as easy at it seems. You hear a lot about those who made money trading stocks and those who made money creating startups - but the failures are often forgotten. Those "over-night" successes are not as common as it seems.  
  4. There's no magic formula. You can read many books about trading and many books about startups, but you can't find a formula which guarantees your success. It is possible to find guidelines from books like "The Lean Startup", but those guidelines don't guarantee success. The same with the stock market, it is possible to use what the trader Paul Tudor Jones used and the theories the investor Warren Buffett used, but you are still not guaranteed to make money from it. 
  5. Different sectors are more popular than others. Common startups today are social networks and sites where you share stuff. Everyone watched the movie "The Social Network" and many people believe they can be the next Mark Zuckerberg. The same with stocks during the IT-bubble, everyone saw how much money everyone else made investing in IT-stocks. 
  6. It is possible to make a lot of money from both. Warren Buffett made money from investing in stocks and Mark Zuckerberg made money from creating a startup.
  7. Ups and downs. When trading stocks you experience hell and heaven from one day to another - the same with startups. One day you think that you are going to get killed by Google, the next day you think that you are going to kill Google. One day you think that you are making millions from investing in stocks, the next day you think that you are going to lose it all because the market is moving against you. 
  8. Cut your losses short. When trading it is important to cut your losses short and sell when you have a loss if something unexpected has happened. Many people are saving the position and they hope that they are going to make the money back if they wait. But what if the investment is Enron which never made it back? The same with a startup - know when to change direction. You may have lost money, but you need to take the decision to sell, and be able to fight another day. 
  9. You might get killed in one day. Google might release a competitor and the stock you have invested in might have cheated with their risk analysis - like Enron and Long Term Capital Management - and you might lose everything in one day.  
  10. The boring stuff are probably the best. Invest in boring companies like Peter Lynch did and create a startup involved in something boring (but with less competition). But when you make money in the end, it's not boring anymore.

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