Month: February 2020

Arbitrage is riskless profit — the holy grail of finance. Buying something for one price and instantly selling it at a higher price. Since there’s no risk involved, anyone will take an arbitrage. These are the most competitive opportunities.

The concept can be extended to the startup world. Businesses lie on a spectrum of arbitrage → from Arbitrage to Art. On one end, you compete to sell a commodity. One banana is pretty much as good as another, so customers take the one with the lowest price. On the other end, you have one-of-a-kind products. There’s only one Mona Lisa. What will people pay for that?

It’s easier to get up and running with a business closer to the arbitrage end. But will it get you to where you want to go?

Sriram Krishnan on the Venture Stories podcast, (my notes on Twitter), explores the different ways top consumer social startups work. Each finds success by applying totally different playbooks: whether it’s creating tools and promoting serendipity (Snap), picking a north star and optimizing (Facebook), or working to promote fundamental principles (Twitter).

There are few universal truths when it comes to startups. In fact, that may be the only universal truth. The only formula is: there is no formula. I still find studying other playbooks as valuable, of course. It shows me how much I don’t know, and how many of my assumptions may be false.

I’ve always believed trading stocks to be a socially acceptable form of gambling — still a “bad thing”. The average trader does worse than buy & hold. I should know, I built an HFT firm.

Recently, while messing around on Robinhood for fun, I’ve changed my mind about this. Trading may be a Good Thing.

In a casino, you have no edge — in the long run, you lose money. In the markets, you may not do better than buy & hold but you can still reliably make money: just make sure you stay long the market, on average.

As long as your trading leaves you generally owning stocks, you get to have a little fun and make money at the same time. Sure, it may not be the rational or optimal thing to do. But, it’s often better than the alternatives.

You have a superpower. Things that come easily to you are impossibly hard for others. And vice versa, of course.

Your superpower may still be nascent, but it often doesn’t take much to let it blossom. The key is to pay attention to what excites you. Let me put it another way: What are you obsessed about? Once you’ve identified your obsessions, see if you can find other ways where the same skills can be applied. Perhaps something with greater rewards.

Even a seemingly silly obsession, like video games, is hiding a superpower with potential. Playing a strategy game — where you plan for the future, manage resources, and make lots of small optimizations — is basically the same as operating a small business. Or a giant one.