Posted by: hdemott | March 24, 2010

Open The Floodgates: Alone And Wrong

Today, another venture firm was born, as Mike Maples decided to make a career out of his hobby (coverage here).

I don’t know Mike or his partner, and have no comment about how he will do – other than to say that his reputation is excellent and he seems to have a nose for getting in a step or two early.

What I found most interesting about the coverage was a bunch of comments describing what he is looking for. In essence – he is looking for home runs (okay which VC isn’t), but what is different is that he is looking for home runs that other people think are absolutely crazy ideas. If he’s wrong, he’s wrong, but if proven right – he’s going to have generated a fantastic return due to lack of competition.

Interestingly, I read this the same day as a Bloomberg piece on Bill Ackman – who shorted MBIA through a massive CDS position as recounted in a new book coming out (Confidence Game by Bloomberg business reporter Christine Richard). At the time – Ackman’s bet was deemed heretical. MBIA was a AAA credit with zero defaults in their portfolio. In retrospect, we know how that story turned out.

Same with the story of Michael Berry, who is the hero of Michael Lewis’ new book “The Big Short.” Berry figured out the problems in subprime CDO’s long before anyone else and made a huge bet on their demise. Again, the rest is history.

So what does all of this have to do with investing – or media – or anything else for that matter?

The answer is that these investors have exhibited one of the great qualities in investing: the ability to be wrong and alone.

Maples seems to express this in the obverse – being right and along – but the only way to do this is to be willing to fund investments or projects that are universally thought crazy and be willing to defend these positions (to investors, partners, friends, etc…) until they can say “I told you so!” or you are proven right.

Not many have the stomach for it and even fewer practice it.

Think about some of the big media companies and their founders pitches:

“I’m going to trade Pez dispencers online” – Pierre Omidyar – EBAY Billionaire

“I’m going to start an online bookstore” – Jeff Bezos – Online Billionaire

“I’m going to start a 24 hour cable news network” – Ted Turner – CNN Billionaire

“I’m going to take on Yahoo in search” – Larry Page and Sergey Brin – Google Billionaires

“I’m going to start a wireless telephone company” – Craig McCaw – Telecom Billionaire

You get the picture. All of these folks could have failed spectacularly, and would have failed largely alone.

So open the Floodgates – stand alone and be not afraid.

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