Interview, Fireside Chat
Michael Mauboussin: The Single Biggest Mistake Investors Make In Decision-Making | 20VC #945
- Over a two-year timeframe, the 10-year U.S. Treasury yield is expected to return to normal conditions, potentially rising from the 90 basis points recorded in September 2020 to levels either below 1% or higher.
- Venture capital returns are projected to persist due to preferential attachment, allowing successful firms to secure superior deal flow, whereas buyout and public market returns have largely lost this persistence.
- High-touch venture capital capacity at the Series A level remains a bottleneck, likely driving a shift toward a "scattershot" investment philosophy in later funding rounds.
- An influx of capital in the venture market risks denigrating returns to Public Market Equivalent (PME) levels of one if increased competition and valuations are not matched by corresponding performance.
- Companies with long-duration cash flows face significant downside risk from real interest rate increases, with sensitivity demonstrated by a swing of approximately 240 basis points.
- Market volatility is expected to continue clustering in "bunches" of shocks rather than following a random distribution, characterized by periods of calm interspersed with high turbulence.
- Current market challenges, including pandemic impacts and supply chain instability, are anticipated to be viewed as minor historical anomalies within a five-to-ten-year horizon, similar to the retrospective view of the 1987 crash.
- Historical volatility in recent decades, including the financial crisis, is expected to pale in comparison to the "vastly higher" volatility observed in the 1920s and 1930s.
- Investment recovery from market downturns is forecast to be fast-paced, contrasting with the more gradual nature of market upswings.
- Future investment decision-making will likely rely on pre-defined "signposts" and probabilities to mitigate confirmation bias, as thesis-driven approaches without such mechanisms are prone to failure.
- Investment committee dynamics will require teams of three to six members to maintain cognitive diversity and prevent the dominance of senior voices, while leaders must actively surface alternative viewpoints to preserve decision purity.
- The venture capital economic model is expected to evolve to crystallize into a framework generating appropriate cash flows, even if early monetization strategies remain unclear.
- While the majority of venture investments are expected to lose money, a small number of high-performing deals are projected to generate sufficient returns to offset the losses.
- Upward market movements tend to occur gradually, whereas downside events are characterized by dramatic and sudden drops, creating psychological challenges for investors.
- Companies with pricing power are expected to mitigate the impact of nominal rate increases, though they remain exposed to rising real rates.
- The economic process of investing will need to adapt to the increasing dominance of intangible assets over traditional tangible assets.
- Teaching and research roles are expected to remain intertwined, with effective instructors continuing to function as "great students" who constantly update their knowledge.
- The speaker anticipates remaining professionally active indefinitely as long as they provide utility and intellectual stimulation through their work cycle.
- Preparation is deemed necessary to capitalize on future "good luck" while maintaining the capacity to recognize and manage downside scenarios in an inherently random system.