A great perspective from this interview Andy Rachleff had with Pomp.
Institutions and Professional investors used to do well in public equities because they would be taking opposite trades against amateurs. One of the reasons returns have declined because most of the players around the table now are professionals so the edge has disappeared.
This is analogous to the professional poker players, who don’t make their money playing at the Poker World Series where they are competing against other top players. They play there to hone their skills. But they make most, if not ALL, of their money going to lesser known competitions or backwaters where they can play against local “Whales” who have money but have a lot less skill.
This is why I spent so much of my time traveling the world looking for great startup founders. I compete in Silicon valley deals against other Silicon valley investors to hone my skills. But then I go hunt in other overseas markets where there are awesome yet overlooked founders. Ones not being well served by their local investor base. It’s “Geo-Arbitrage” at this best. Or as I prefer to call it “Airplane Arbitrage.”
These local investors for the most part are not bad folks. They just don’t have the skill set, experience, connections and reputation to compete against someone like me. It’s just a fact. The overall awful advice & service I hear these founders get from investors in their region makes me weep for the state of Venture Capital and angel investing there. But assuming I do a good job here advising/helping the local startup founders and sharing best practices with local investors, this raises the bar and forces the other local investors to raise their game too. Co-opetition at work! :)
Peter Thiel says “Competition is for Losers.” I fully agree here. You compete in the top markets to upgrade your skills. But then you apply these skills in a market where you have an unfair advantage. With this unfair advantage you build your monopoly. This is how you win in the long run.