I am not a financial advisor and I am not recommending you buy any specific stocks or cryptocurrencies. Here’s a summary in case you’re too lazy to read.
Summary
Back in 2013, most “smart” people were dismissing Bitcoin as stupid.
Peter Thiel pointed out that successful startups are built on assumptions that sound stupid to most people.
Cryptocurrency is a great modern-day example of this. Even now, there a lot of people who think the whole thing’s a scam.
A great way to figure out whether a “stupid” technology actually is stupid is by looking at how it’s progressing over time.
Lots of people thought the Internet was stupid in the 90s, but it got faster and faster over time until it was really easy for anyone to use.
Missing out on tendies
The first time I remember hearing about Bitcoin was back in 2013, when I heard one of my high school friends talking about it. I didn’t really have a strong opinion on it, but all the articles that I read online about it seemed to think it was stupid, so I didn’t investigate it any further. That was definitely a mistake. Back then, I could’ve bought one Bitcoin for $100. That would be worth more than $57,000 now.
I’m sure most of you reading this had similar experiences with Bitcoin. The lesson we should all learn from missing on those returns is that we shouldn’t just be ignoring new technologies when most people are dismissing them as stupid. In fact, that’s exactly when we should be paying close attention.
What I learned from Peter Thiel
One of my favorite books ever is Zero to One by Peter Thiel, who co-founded PayPal and Palantir. It’s a great look into how his mind works and how he thinks about companies to invest in. The first chapter starts with a question that he asks anyone that he interviews.
“What important truth do very few people agree with you on?”
Thiel goes on to talk about how most people don’t really have good answers to this question. They’ll usually say something about how American education is broken or share some other opinion that isn’t really that controversial. Those answers aren’t really what he’s looking for — the best answers are those that actually have a definitive view of what the future is going to look like and sound really stupid to most people.
Those are the kinds of answers that great companies are built on.
There’s a reason why startups need to be built on ideas that sound stupid. If an idea is too obvious, there’s a good chance that at least one of Facebook, Amazon, Apple, Microsoft, or Google is already pouring money into it. In addition, there are probably a ton of other startups who are trying to do the same thing. The odds of actually building a successful company when there’s this much competition are pretty low.
For an example of a startup that was built on an idea that sounds stupid to most people, we can look at Airbnb. The founders made the assumption that homeowners would be okay with random people staying at their house if they wanted to make some extra money. It seems obvious now, but back in 2008, most people didn’t understand why hosts would run the risk of having a serial killer murdering them in their sleep. Now, there are more than 7 million Airbnb listings and the company is worth $112 billion.
Is cryptocurrency colossally stupid?
So what does any of this have to do with you? Well, if you’re making investments, you can “beat the market” if you find a company or technology that most people think is stupid but actually has a lot of potential. After all, the fact that most people are dismissing it means it’s underpriced relative to its true value.
That’s why I’m so interested in cryptocurrency right now. Crypto is built on one important truth that most people probably don’t agree with, “A better financial system can be built through code and decentralization.”
That idea was a lot more controversial 5 years ago, but it still seems ridiculous to most people over the age of 40. Even though Bitcoin is worth more than $1 trillion, many people still think crypto is a giant scam.
Take a look at this guy right here.
This guy is a total douche who’s trying really hard to look like the smartest guy in the room. It’s really not that hard to see why cryptocurrency-enabled services like decentralized finance are so exciting. After all, many of these decentralized finance protocols give savers significantly higher interest rates than they can find in any traditional bank.
That being said, I do understand where this guy is coming from. Right now, the cryptocurrency landscape is really hard to navigate for anyone who isn’t a nerd. As I wrote last week, these usability issues mean it’s going to take a long time for cryptocurrency to reach the point where it’s going to start replacing the traditional financial infrastructure.
Finding evidence for your stupid idea
So maybe you came up with your answer to Peter Thiel’s question and you have a view of the future that’s different than most people’s. Then, there’s another question you should probably try to answer: Am I actually on to something or am I just a moron?
To figure out how to answer that question, we can look to history. Here’s how Jeff Bezos decided to make a decision that most people at the time probably thought was incredibly stupid, quitting his job as VP of a prominent hedge fund to start Amazon back in 1994.
"I came across the fact that Web usage was growing at 2,300 percent per year. I'd never seen or heard of anything that grew that fast, and the idea of building an online bookstore with millions of titles--was very exciting to me.”
Back in the 90s, most normal people only used the Internet to send email. Broadband speeds were so slow that loading an image took forever, and loading a video was basically impossible. That’s why back then, lots of smart people thought the Internet was a joke. Nobel Prize-winning economist Paul Krugman said the Internet’s impact on the economy would be no bigger than that of the fax machine.
Bezos clearly saw things differently, and he was 100% right. The fact that the Internet was growing this fast when broadband speeds were still slow is incredible. The numbers showed that the concept wasn’t all hype —the Internet was an exciting new technology. Jeff Bezos recognized this and decided he needed to make his move and build his company while the Internet was still young and the opportunity was still there.
So what can we learn from this story? As venture capitalist Chris Dixon pointed out, there is a way to determine whether the stupid thing everybody is dismissing is actually going to turn out to be a big deal: paying attention to how the technology is progressing over time.
While the Internet was incredibly hard to use in 1994, things got better pretty rapidly. It’s been estimated that Internet speeds have gone up 10x every 5 years since 1990. It wasn’t possible for most people to watch videos online in 1995, but by 2005 we had YouTube.
Just like the Internet, cryptocurrency has become significantly less annoying to use over time. A few years ago, it was really hard for any normal person to buy Bitcoin and send it to other people. Nowadays, Cash App allows you to do both of those things really easily. With this rate of improvement, it’s possible that within a few years, putting your money in decentralized finance will be easier than setting up a bank account.
In conclusion
It’d be nice if I could go back to 2013 and buy some Bitcoin. It would also be nice if I told myself to get better at basketball so I could actually score some points in some of the pick-up games I played with my friends during my freshman year of college. But hey, you can’t redo the past — you just got to learn from your mistakes. I’m still trash at basketball, but next time I hear one of my friends talk about some new technology, I’m not ignoring it just because I read some negative article online.
Anyway, if you liked what you read, sign up for our weekly newsletter. If you enjoyed hearing about me missing out on Bitcoin, you’ll definitely enjoy other stories of me trying to make other money moves and failing really hard (with notes on what you can learn from those stupid decisions).
Why I try to pay close attention to things that look stupid