
The Long Buy - tosh
https://avc.com/2020/02/the-long-buy/
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c0restraint
> 2/ You get to build a blended purchase price which is less dependent on the
> circumstances of a particular moment in time.

This is essentially Dollar Cost Averaging... which is a recommended approach
when you psychologically fear the risk of lump sum investments (though, lump
sum investments are expected to have a higher return than DCA, at least in the
case of index fund investing)

[https://en.wikipedia.org/wiki/Dollar_cost_averaging](https://en.wikipedia.org/wiki/Dollar_cost_averaging)

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breischl
The underlying logic for Lump Sum in an index is that the index is tracking
the broader economy, which "always" goes up over the long haul. That same
logic doesn't apply for a single company, where idiosyncratic risk will quite
likely swamp the effects of the slowly rising tide of the broader economy.

I would guess you probably get better valuations in the early rounds, but have
less risk of loss in the later rounds. If nothing else, survivorship bias is
playing in your favor for the later rounds (ie, the company has at least
survived long enough to reach a Series B, C, D, etc round).

~~~
beaner
I don't think this is always true. You could believe that something like
Bitcoin is a good investment over a 10-year term, but recognize that it's
volatile in the short-term, and so want to dollar-cost-average for that
reason, regardless of what you think the broader economy might do. Some might
even see it as a hedge against the rest of the economy.

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H8crilA
_> There are not that many asset classes where the manager has a pool of long
term locked up capital and the opportunity (and the right) to invest again and
again in a company._

This is something that you can do easily in your private portfolio. "Buy when
there's blood in the streets, even if the blood is your own". This, of course,
requires a decent reserve of cash/high quality bonds.

Not many asset managers are willing (or rather able, due to client pressure)
to hold un-invested assets.

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DaniFong
It's not smarts, but disciplined will-power and clear-sightedness, that's the
determinant of any game played for long enough to span enough crises. Many
ambitious startups in that category.

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breck
I'm dreaming, but it would be nice to see some numbers.

What would Union Square's performance have been if they just invested a max of
once in each company? Twice? Instead of this N times strategy? I wonder the
same about YC.

I think the strategy he's talk about is simply called Dollar Cost Averaging
([https://en.wikipedia.org/wiki/Dollar_cost_averaging](https://en.wikipedia.org/wiki/Dollar_cost_averaging))
in the public markets. I do it. It works and because there's data available
it's easy to see.

I haven't seen anyone put out numbers yet on how important it is in
angel/seed/VC investing.

My back of the envelope guess is that unless you follow this strategy
(doubling down on your winners 3-5 times before liquidity) it's not worth it
to do early stage investing, but I'm not sure. Would love to see some data.

Edit: Actually, looking up DCA its meaning is a bit more specific than I
realized and not quite a strategy that I follow. I meant more about doubling
down on your (expected) winners particularly when their price falls
irrationally. Half-baked analogy.

~~~
xorfish
> I meant more about doubling down on your (expected) winners particularly
> when their price falls irrationally

You can't really know if the price fell irrationally. Maybe its just you
misinterpreting the available data.

The data is pretty clear, holding cash in case the market drops costs you more
than a possible crash.

"Far more money has been lost by investors preparing for corrections, or
trying to anticipate corrections, than has been lost in corrections
themselves"

This is an iconic quote that captures that sentiment.

~~~
breck
I agree that it’s a worse strategy if you hold capital back.

I was looking for a comparable in public equities where you keep buying more
of the same thing, doubling down on the bets you know and like. I guess in
private markets you are limited by the available supply. In Public markets you
are limited by your capital.

For me when I get more capital I will deploy generally in things I already
own, which has the affect of lowering average price if the price has
fallen(that’s why I made a mistake calling this DCA).

~~~
xorfish
I mean today it is very easy to hold the whole market, so why take on
idiosyncratic risk that doesn't have a positive expected return when you can
just the whole market and maybe some factor premiums?

The price you bought it is irrelevant, all that matters is the current value
of the security. If you have capital, it is always the best decision to put it
in the market as soon as possible.

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breck
For passive investing that’s the Way to go. But I am an active investor And
put time into helping my companies whether big or small. I like to have a
thesis And invest on that. I also would be willing to underperform a Certain
percentage if it Was in service of companies that I think are building a
better world. Though FWIW have beaten vfinx easily past 5 years.

~~~
benibela
During the last years one could easily have outperformed it with spxl

~~~
breck
Wow I get the risk of that but still cool to see that performance :)

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codecamper
I guess "long buy" is a great strategy for the government's "long spend",
"long debt", "long bonds", and "long whatever just blew out".

Where does all this wind up?

So #2 doesn't seem valid. Your purchase price is a direct reflection of global
central bank's policies, meaning... it's only going up as currencies go down.

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orky56
This seems like a dangerous justification for the sunk cost fallacy. If you
get in early on an investment, you become partial to the company based on the
relationships you have created and your understanding of the market. Although
that might allow you to have a better investment criteria for a following
round, you could posit the question of whether another investment opportunity
is the more sound choice.

On the topic of dollar cost averaging, you are reducing your risk within the
investment based on timing but that is too much of a micro level view of the
power and value of the investment dollar.

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javitury
The host is down, here is the page on the Wayback Machine:

[https://web.archive.org/web/20200203194541/https://avc.com/2...](https://web.archive.org/web/20200203194541/https://avc.com/2020/02/the-
long-buy/)

