His son, on the other hand, is a dyed-in-the-wool Boglehead (he put his bar mitzvah money in VOO) and thinks his dad is nuts.
We had a fascinating discussion over his angel portfolio versus what his son (and I) tend to put our money into. Needless to say, he doesn’t subscribe to the Boglehead philosophy that you shouldn’t try to beat the market.
Where we landed (philosophically) was a place that explained both why he was able to generate excess returns and why Boglehead-style investing was right for the masses. Interested in feedback here to see if we missed anything.
- Liquidity. As an angel investor, he deals with very illiquid assets that do not trade and transact regularly. Moreover, he gets information through his angel network, which is not usually available publicly. As a result, there is a defined information advantage that doesn’t exist in public markets.
- Governance. As an angel investor, he has board seats (and sometimes chairmanships) at his portfolio companies. Therefore, he has a hand influencing management decisions and corporate strategy for the better. The excess returns he generates is therefore not just his information advantage, but his own managerial contributions.
- First mover advantage. Since he is seeding his own companies from scratch, he gets in at low valuation levels before much larger chunks of VC capital flood in, which drive up his valuation. Therefore his cost base is lower.
That being said, none of this makes sense for the masses because 1) most people don’t have $1-$2M laying around to seed their own angel portfolio, 2) most people don’t have the time to get involved in an angel network or participate in board governance of their angel portfolio, and 3) if you try to professionalize it as a fund to passive investors, the fund fees will eat up the excess returns.