Date Like A Great Investor

11.16.2014 (3)

It’s extremely rare for me to ever read anything regarding dating and game that makes me stand up and pay attention. After having been involved in the dating world for over a decade, one starts to feel that they’ve heard every angle on describing game and dating rituals…until now.

A reader left a comment on an article of mine presenting a perspective that perfectly combined investing and dating, so I asked if he’d be interested in expounding on his comment and writing an entire guest article.

This is it.

It’s one of the best analogies I’ve ever read on dating. See for yourself.

Note: due to his need for anonymity he’s chosen simply to go by ‘BK’ for this post.

I work for a public-market investment group and think great dating is just like great investing. The companies you add to your portfolio will dictate a large part of your financial success, and the women you allow into your life will dictate a large part of your personal happiness. Developing the 3 mindsets of Risk First, Disconfirming Evidence, and Quit Hoping will help you get better at both.

1. Risk First Mindset

The first characteristic that separates great investors and daters from the average is a risk first mindset versus a reward first mindset.

Investing

The average investor will look at a potential investment opportunity with a reward first mindset and try to understand all the ways it could be worth more in the future. Upside might come from:

  • Revenue growth
  • Cost savings
  • Multiple expansion

What this reward first strategy misses is that every investment carries a very real risk of losing money, and that focusing on the upside can blind you to the downside.

This is why great investors start out with a risk first mindset and try to understand why the company might be worth less in the future:

  • Falling revenue
  • Production cost increases
  • Management failures
  • Research and development dead ends

The strength of the risk first strategy is that if you can get comfortable with the risks occurring and believe they can’t hurt you, then every investment you make will have a better chance of being financially successful. This would be like a situation where you see that even if sales were to fall 30%, the company has patents worth three times the purchase price and a competitor would buy them.

This risk vs reward focus is a subtle difference, but it makes a world of difference in practice.

As an example, I invested in a tobacco company during a period of turmoil. The FDA was considering banning flavored cigarettes and the average reward first investor was trying to understand the likelihood of a ban, because FDA inaction would save a major product line and cause the stock to rise. But this reward first mindset overlooked the huge risk and stock price dive of a negative decision. So the obvious risk first question was ‘what happens if the FDA bans these products?’. After a lot of work I realized the appeals process would take many years, during which time the company would continue to operate as normal and its dividend payments during the appeal would equal 85% of the company’s enterprise value. So instead of waiting for the FDA decision, I was comfortable I could lose a maximum of 15% (100% investment minus the 85% dividend payments) and potentially make 150% (fair value stock price) and made a large investment.

Investment opportunities with such capped downside like this are rare, so the best investors may only make a handful of big bets per year. But that’s fine because the worst outcome is losing money.

Risk First Investing Mindset: Assume the worst will happen, and only invest if that eventuality won’t kill your portfolio.

Dating

The same dynamic applies with women. Most average daters are reward focused on women and the upside they provide:

  • Beauty
  • Awesome attitude
  • Great sense of humor

What the reward focused strategy misses is that every woman has some negative issues, and that focusing on her positive qualities can blind you to her worst qualities. Like a woman so beautiful you overlook her outright disrespect.

But as a risk first dater, it’s better to focus on the potential downsides:

  • Doesn’t dig your humor
  • Self-centered
  • Disrespectful

The strength of this strategy is that if you can get comfortable with a woman’s worst qualities and believe that they won’t negatively impact your life and confidence, then that relationship has a very strong chance of working out. And realistically, no one is faultless.

As an example of this, one of the great women in my life was one that I tried to disqualify as girlfriend material for a long time. From the beginning she seemed to be a unicorn: beautiful, sweet, carrying, family oriented, traditional and modest. But I became nervous as I learned about her traumatic childhood during the Serbo-Croatian wars. Her tiny farming village was attacked with mortars for sport, she was once forced to watch soldiers kick in a man’s head for a gold tooth, and she saw the ravages of a heroin epidemic sweep through the refugee camps. Harrowing experiences often ruin a person, and she had seen some of the worst. So I consciously kept an emotional distance, and was proactively looking for unacceptable behaviors. But I was gradually won over as she never demonstrated anything less than pure joy and love to me and everyone around her. I came to understand that her childhood experiences had burned the concept of hate out of her, and that we could create a powerful partnership.

Great women like this are rare and you will be lucky to meet a few each year. So choose to enter long-term relationships carefully. Because the worst outcome is being joined to a soul sucking harpy.

Risk First Dating Mindset: Assume she is crazy from the beginning, and make her prove she’s not.

the_gorgeous_model_who_has_a_very_unique_beauty_feature_640_13

2. Confirming vs Disconfirming Evidence Mindset

The second characteristic that separates a great investor and dater from the average is their focus on disconfirming vs confirming evidence.

Investing

When looking at a new investment opportunity, you create a thesis of how you think the future will play out and why:

  • CarCompanyX will sell XX units in 2017 because customers are transitioning to electric cars
  • SearchEngineXX will do XX in revenue in 2020 because advertising spending is moving to online and they will capture XX%
  • CoffeeCompanyXX will do XX revenue in 2018 because the new breakfast menu will continue to capture share and internationally they will open XX stores.

The average investor will look for evidence that confirms this thesis. So for a search engine investment, they might interview the CEOs of major advertising agencies and ask how much more client budgets will move from print media to online. What this strategy misses is that you can always find evidence supporting an investment thesis. Even as cars were replacing horses in the early 1900’s, you could find customers for buggy whips – but this didn’t make buying a buggy whip manufacturer a good idea!

Therefore the great investor will look for disconfirming evidence that kills their investment thesis. The great investor might interview the same advertising agency CEOs, but would instead ask how many of their clients were pulling advertising budgets from online back to print.

This is a subtle difference but you’d be surprised at how few people ask the negative side of questions.

If the answer is ‘none’, the investment thesis is strengthened. If the answer is ‘many’, the thesis is broken and the investor begins working on another idea.

Perhaps it’s surprising, but the great investor is happier to discover disconfirming evidence, because it kills the thesis, and time is not wasted on an uninvestable idea. And the time saved can be used to work on another idea.

As an example of this, I was looking at an investment in a provider of cloud sharing applications for the financial sector. The company had recently lost a major customer, dragging revenue, profits and the stock price down. My investment thesis was that remaining customers were locked into the technology and were not interested in switching providers, and that the company could cut costs to stabilize margins. I contacted the company’s biggest customers but instead of asking about service and pricing satisfaction, the first question I asked was ‘are you seriously considering changing vendors?’. When 3 of the 5 said yes, I knew the thesis was broken. And by quickly ending the process, I could move on to another idea.

Disconfirming Evidence Investing Mindset: Ask why things will go wrong, and only invest if you can’t find evidence for this.

Dating

When considering a woman for a long-term relationship, you should have a set of criteria in mind and why they are important:

  • Sweet and kind to her friends and family, because this is how she will treat me
  • Laughs at my jokes and loves my humor, because this is a sign we are compatible
  • Likes my hand on her thigh in a restaurant, because it demonstrates sexual interest

The average dater will go through their mental checklist and look for all the times a woman responds positively. But this is a huge mistake! Because it is in the 1 or 2 times she doesn’t respond, or much worse, responds in a negative way, that explains her interest. Like a woman that is sweet the first time she meets your parents, but later says ‘your mom is a bitch’. By dumping her immediately, you save yourself from more disrespect and get to use your precious time finding a better match.

As an example, I once turned down a guaranteed sober lay with a gorgeous Russian girl.

We connected online, met in a dark wine bar, and she was just as fine as her pictures. Then followed an hour of the most uncomfortable date – she responded to questions with a single word, refused to talk about her family, stared at my blankly whenever I said anything remotely funny, and stiffened when I grazed her arm or leg. I made an excuse to end the date early, we walked to the corner, and when I hailed a cab she grabbed my hand and said “Where are you going? You will spend the night with me?” I could not get out there soon enough to get home! My friends who are average daters continue to call me crazy – but there were too many example of disconfirming evidence and on the first date. I know that I don’t get along with women who don’t dig my humor, and have seen too often that lack of sexual chemistry at a bar leads to horrible sex. And with the time saved, I could get a good night’s rest and hit the gym in the morning.

Disconfirming Evidence Dating Mindset: Screen for her criteria you won’t accept, and leave if you find any.

screen-shot-2015-11-17-at-11-36-57-pm

3. Quit Hoping Mindset

The third characteristic that separates a great investor from the average is avoiding hope.

The first 2 sections have dealt with understanding and identifying the truth, but there are also situations that are inherently uncertain. How do you deal with uncertainty? The average hope, the best walk.

Investing

There are situations that are inherently unknowable, whether due to future uncertainty or legality of data collection, such as:

  • Price of oil in 36 months
  • Corporate merger decisions before they are publicly announced

The average investor will eventually have to guess and hope at such figures. The great investor is uncertainty averse and when presented with the same question will simply decide that it is too difficult to understand and move on. And often a simple test whether something is unknowable is an uncomfortable feeling in your stomach. That is your intuition saying ‘be careful’. And it pays to listen to your intuition.

One time I did not listen to my intuition was during an investment in a search engine company.

The company was simplifying its advertising platform and my investment thesis was that this would dramatically expand the pool of potential small business customers and drive revenue. I surveyed a large number of present and potential customers, and everyone was impressed with the platform changes. The findings were positive, the thesis was intact, and I made the investment – but something always felt off. Potential customers were impressed with the updated advertising platform, but most were not previously aware of the changes. I thought that knowledge of the changes would diffuse through the market down to the small businesses, but in hindsight this was hope. And this hope manifested itself in a vague unease. I should have paid attention because product awareness was slow to spread and the investment performed poorly.

Quit Hoping Investing Mindset: If you’re unsure and your stomach aches, don’t invest.

Dating

There are also times when you can’t be certain about a woman. And if it hits the gut level, its best to walk away.

It cost me time and mental anguish the one time I didn’t listen to my gut.

The woman was everything society and my mom would want for me. We shared a near identical background (race, religion, home state, family size,…), she was sweet and a stunning part-time model. We had a great time together and boxes were checked one after another. Except something always felt off to me – a small joke she didn’t laugh at, a tiny amount of distance when dancing, a slight hesitancy to pull me into her life. The issues were never big enough to be deal breakers, so I ignored them as the bigger picture seemed right, and I believed they would get better. But I was really just hoping they would get better. And instead they very, very slowly got worse.

So slowly that I didn’t realize the issues were changing from a slight lack to connection, to pulling away, and eventually to outright disrespect. I wasn’t consciously aware of this until the disrespect blew up in my face one year later – when she said spitefully that I was “unthoughtful” in my birthday present to her of a $500 tasting menu restaurant meal. I couldn’t ignore this disrespect and hope it would go away, and so I ended things a few days later. But there was no need to waste so much time, money and consideration on someone so underserving – my intuition had picked up on the incompatibility from the beginning.

Quit Hoping Dating Mindset: If it feels off, dump her. It’s better to quit than hope it gets better.

Final Thoughts

While the Risk First, Disconfirming Evidence and Quit Hoping Mindsets are powerful, don’t expect perfection in your investing and dating either today or in the future.

The great investors are only right 70% of the time – even Warren Buffett has been down 50% three times. And great daters continue to have blowups – I think Christian’s “Guide to Damaged Women” is one of the most important dating articles ever written and was developed from his experiences with destructive women.

You will learn more from your mistakes than your successes. Embrace your stumbles, but refuse to make the same error twice. And aim to get a little better each day.

Risk First Dating Mindset: Assume she’s crazy from the start.

Disconfirming Evidence Mindset: Search for deal breakers.

Quit Hoping Mindset: Get out if you’re not convinced down to your bones.

Napoleon Hill like you've never seen before...

 

2 Replies to “Date Like A Great Investor”

  1. Gold, thanks for the investing advice, I’ll definitely be putting that to use. In terms of business decsions and dating. And refusing that Russian dime, that’s pimping. I’m working getting to that level of pimp. Do you and chase the paper, don’t chase hoes.

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