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“I refused to even consider ordering less inventory. Grow or die, that’s what I believed, no matter the situation.”
― Phil Knight, Shoe Dog
Nike Inc. has been one of the best investments in the history of investments: The stock is up 73,000% from its 1981 IPO.
Returns are, of course, even bigger for those that were somehow lucky enough to get in pre-IPO.
And yet, when Phil Knight presented Nike’s annual report to the company’s first cohort of outside investors, they were all clamoring to have their money returned: Nike had posted a loss of $50,000 for the year.
Knight did not understand their concern.
The disconnect was that the first Nike shareholders thought they were investing in a predictably profitable importer of running shoes, while Knight had much bigger ambitions.
Fortunately, it was the founder making the decisions at Nike and not his shareholders.
Phil Knight’s grow-or-die philosophy is what made Nike great: At every crossroads, he chose risk over safety.
If those choices were put to a shareholder vote, they’d have chosen safety every time.
And Nike would be a long-forgotten importer of Japanese running shoes.
That dynamic is not unique to Nike: Early investors rarely know exactly what they are buying into. Especially with pre-IPO investments, which are essentially just bets on founders.
Most of those bets do not work out. But some of them work out huge: Nike, Amazon, Apple, Facebook, etc.
When they do, it’s because a founder has taken numerous risks that would never have gotten past a majority vote of shareholders.
Decentralized decision-making will never build the next Amazon, Apple or Nike.
Gotta buy ’em all?
Stock market returns are highly dependent on the outsized success of a small number of mega winners.
Just 4% of stocks accounted for all the stock market’s returns between 1926 and 2016.
This is, of course, an argument in favor of indexing. It’s virtually impossible to spot the mega winners in advance, so it’s best to just buy a little bit of everything.
That has worked brilliantly for equities investors over the past few decades.
But will it work for crypto investors over the next few decades?
It likely will do for VCs and angels.
They invest in the equity raises of crypto projects that are still led by dynamic founders willing to take bet-the-farm risks — and happily cede their voting rights to those founders.
By the time a token is listed, they have often made their 100x return.
It may not work out so well for the rest of us who are buying those tokens, often from VC sellers, just as governance is being decentralized.
That decentralized governance — putting every big decision to a shareholder vote — will not lend itself to the risk-taking required to create the next generation of mega winners like Nike, Apple and Amazon.
And without those mega winners, average returns are likely to be low for investors.
So a Vanguard-style, buy-‘em-all strategy is unlikely to work out as well for crypto investors as it has done for stock market inventors.
There have, of course, been a number of mega winners in crypto: BTC, ETH, SOL, LUNA.
But, for one thing, these have mostly been layer-1 blockchains, and how many more layer-1s can we need at this point? Maybe a few — Celestia and Aptos Labs are two interesting ones currently in development — but the L-1 playing field is crowded.
And, for two thing, the starting valuations are much higher now.
By the time tokens are available in Celestia and Aptos, I expect they will be valued at a level from which it’ll be nigh impossible to get SOL or LUNA-like returns.
We all gonna make it?
So, does that mean we need to keep all of our money in S&P index funds?
No, not at all.
It just means that investing in crypto is going to be more like investing in commodities than investing in equities.
Or more like investing in, say, Micron, where the trick is to pick your moments in the semiconductor cycle, rather than Nike, where the trick is to buy and never sell.
It’ll require more timing and “stock-picking” (i.e. token-picking) and less HODLing and indexing.
Timing and stock-picking is entertaining…but not for everyone. It’s much harder and more time intensive than buying and holding.
Which, unfortunately, means that crypto may turn out to be less WAGMI for investors than the stock market has been.
Financial Firm Cowen Unveils Digital Assets Unit — Blockworks
Orca Whirlpools Brings Concentrated Liquidity to Solana — Blockworks
Clearpool Mainnet Launch Promises Unsecured Liquidity for Investors — Blockworks
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