Bold Forecasts from Peter Thiel
If you haven’t heard of Peter Thiel, then it’s time to leave that cave you’ve been hiding in. He is one of the greatest investors and entrepreneurs of our time, having cofounded PayPal Holdings Inc (NASDAQ:PYPL) and having been an early investor in Facebook Inc (NASDAQ:FB).
In Silicon Valley, “Peter Thiel” is synonymous with success. He famously made a 149,900% return on his investment in Facebook when the social media company went public. In the blink of an eye, his $500,000 became $750 million.
Peter Thiel has gone on to fund some of the most successful companies in the world, not to mention some of the most eccentric. He is, for instance, funding an organization that wants to build a floating city in the ocean, free of government control.
Oh, I may have forgotten to mention that Peter Thiel is a staunch Libertarian. He believes very strongly in the power of markets. Perhaps those beliefs were forged in his early years on Wall Street. Regardless, he has made a fortune investing in businesses.
Here’s his advice for future investors and entrepreneurs based on his book Zero to One:
1. Monopolies are Good
“Monopoly is the condition of every successful business.”
Here, Thiel is making one of his most controversial arguments. He believes monopoly, rather than competition, should be the eventual goal of a company. That way it can have the power to raise prices and score big profits.
2. Don’t Follow the Crowd
“Every moment in business happens only once. The next Bill Gates will not build an operating system. The next Larry Page or Sergey Brin won’t make a search engine. And the next Mark Zuckerberg won’t create a social network. If you are copying these guys, you aren’t learning from them.” (Source: “Zero to One: A Discussion with Peter Thiel,” General Assembly, February 11, 2015.)
This is a really important point. Investing is about spotting the next big thing, and you can’t do that by fixating on the past. Consider what problems exist in the world today. Any company with a unique solution to those problems is probably a good investment.
3. Go Big or Go Home
“First, only invest in companies that have the potential to return the value of the entire fund.” (Warning: Risk-averse investors should probably ignore this one.)
Venture capitalists like Peter Thiel approach investing differently from the rest of us. They put money into several companies knowing that some of them will fail. The goal isn’t to avoid that failure, but to rely on the fact that one of them will score BIG. Its success should more than cover the other losses.
4. Technology Is Everything
“In a world of scarce resources, globalization without new technology is unsustainable.”
At a certain point, the world will face a shortage of food, water, and other natural resources. Thiel thinks technology can help solve those problems, thus allowing us more time to take selfies and play Angry Birds.
5. The Best Product Usually Wins
“If your product requires advertising or salespeople to sell it, it’s not good enough: technology is primarily about product development, not distribution.”
I’ve often seen investors fall into the trap of choosing stocks that are the most visible. Just because you’ve heard more about a company doesn’t mean it’ll be a successful investment. In the end, better technology usually wins out.
6. Think for Yourself
“The most contrarian thing of all is not to oppose the crowd but to think for yourself.”
This is pretty self-explanatory. Stock market bubbles are formed when everyone just follows the crowd. That’s precisely the wrong thing to do if you want to be a good investor.
7. Failure Isn’t Good
“Failure is always very overrated… Whenever you fail, you never learn much from it, because you typically fail for so many reasons. You may figure out one of them, but the next time you’ll fail for the other five.”
Thinking about failure can be depressing, but that’s part of Thiel’s point. The people who tell you “failure is good” are just looking to make you feel better. If you want to get rich, failure doesn’t really help you. Avoiding failure is better.