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Multicoin Capital Co-founder: How to make decisions for your investments?

思维怪怪and others2Authors

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The key to decision making is not to build complex utility models, but to be very clear about which variable you are optimizing.

Original author: Kyle Samani, Multicoin Capital

Original translation: Weird Thinking, BlockBeats

This article is based on the views of Kyle Samani, co-founder and managing partner of Multicoin Capital, on his personal social media platform. BlockBeats has compiled and translated it as follows:

Generally speaking, simple is better than complex, and concise is better than verbose. This is especially important when making decisions, but how can you make concise decisions?

Optimize the most important single variable

All decisions in life, including where to live, what car to drive, whether to take Uber X or Uber XL, what to eat, what to invest in... In theory, there are countless variables to optimize.

One way to make decisions is to make a list of these variables, weight the importance of each variable, and then try to evaluate each decision alternative along these variables and come up with a weighted score. This is obviously correct. But from what I have learned, in most decisions, a single variable is more important than all the other variables combined.

This is why the key to decision making is not to build a complex utility model, but to be very clear about which variable you are optimizing.

To give a personal example, I take an Uber XL instead of an Uber X because bigger car = safer (I don't know if Uber drivers are reliable, so I optimize for safety). I almost always buy one brand of T-shirts because I know it will fit me well. This way I don't have to think about what to wear, I can just match the color according to the weather or my mood (minimizing the mental load on some apparently insignificant details). I only eat salad and protein for lunch, no carbs, because carbs make me sleepy in the afternoon (to maximize the day's productivity).

You can extend this framework to investing, and I'll give some examples below.

Clarity of theme is everything

The first section of our investment memo is called the "Topic Summary" and is limited to 3 sentences. If 3 sentences don't make the topic clear, don't discuss it.

Some examples:

Helium — Radically lowers the cost structure for building the Internet of Things

Solana — Technical scalability creates social scalability

Graph — GraphQL is the right query abstraction layer, and decentralized reads are important for all kinds of applications

Fractal — Gaming NFTs are huge, led by the best companies

LayerZero — Cross-chain bridges are damn complicated, focus on simplicity

Hivemapper — Create maps of data Helium

Arweave — Permanent storage is a new, original technology that unlocks entirely new use cases we can’t even imagine

Superfluid — A first order correct way to do payments

Serum — CLOBs are a first order correct mechanism for handling price discovery

Ceramic — A proper decentralized database that could power a decentralized Twitter or a decentralized Reddit

Fluence — Decentralized AWS Lambda

UXD — The most capital efficient way to create a fully collateralized decentralized Stablecoin

All of the above project descriptions are indeed simplified and fail to capture the nuances required to actually commit investment. But what I learned is that when you make an investment, use some simple heuristics mentally to remember it.

Every time you read an article on the internet, or talk to a friend, you are comparing the article/conversation to your existing portfolio in real time. The only way to do this is to distill each investment into an extremely concise summary.

Thus, all of the examples above are intentionally simplified to be as simple as possible.

The most interesting of these examples is Arweave, because it kind of violates the "thematic clarity" rule, and that's because when we first invested in it in June 2019, Arweave was the new thing in storage. Fortunately, Arweave succeeded. I highlight Arweave because sometimes clarity is impossible, and that's okay. However, you have to accept the risks for this and understand what the risks are.

Anyway, I've been meaning to write this rant for a long time. There's no specific reason, I just wanted to share some of my thoughts, hope you enjoy.