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Becker Private Equity & Business Podcast
Index Funds, Individual Stocks, Private Equity Funds & Investing in Private Companies 4-18-25
00:04:21
In this episode, Scott Becker discusses the pros and cons of various investment strategies.
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This is Scott Becker with the Becker Private Equity and Business podcast. Today we're going to talk about index funds, individual stocks, private equity funds and investing in individual private companies. So, so here's the, here's the, the issue in the discussion and I think Vanguard's founder and Warren Buffett has said this, right, that most of US should spend 95% of our investment time just vending, investing in broad based index funds. But I'm going to take you through the other three investment categories and as you become a little bit more affluent, a little wealthier, you feel like you've really arrived when you can invest in private equity and venture capital funds and people actually allow you to when they want you to. And this goes back a little bit to a little bit ago when it wasn't just so open to retail investors, but, but where you actually directly invest in private equity and venture funds. And I was explaining this the other day. You feel that when that happens, you've really made it, you know, oh my God, I'm investing in private equity funds, the venture capital funds. I've made it to the promised land. And I'll tell you what this feels like in real life as an investor. In real life as an investor, it feels as follow. You're the dog that tries to catch the car. You're chasing the car and you finally catch the car and find, oh, that wasn't so great. And I'll tell you, that's a little bit how it is investing in venture and private equity funds over the last five to seven years. So it seemed like getting to the holy grail and not so much there as much as it was. I used to say about one VC fund, it was harder to get into and be a regular investment fund than it was to get into Harvard Law School, which is true. But again like you catch the car and it's maybe not so great that you made it there. The next thing we talk about is investing in individual companies. One thing that happens is once you start investing in individual companies, you look like the guy at the, I'm not sure what the right, you know, a good investor to join companies. A someone who looks like they can help and they want your money and all those kinds of things. And what you find again over time is that, that it's again like the dog caught the car, that it's not as good as it sounds because for every one that goes great, there's, there's 15 of them that, oh, that turned into a zero. Or this one calls, it says, you know, we've made a big change to our business plan. Like, what do you mean you made a big change in our business plan after we already put in so much money. But, but what you find is this holy grail of investing in individual private companies, this holy grail of investing in private equity and venture capital funds. Not as much of a holy grail as you thought it would, and probably closer to back where Warren Buffett was saying, you know, you're far better off just putting most of your money in broad based index funds. Now the subject of individual stocks. Again, unless you have so much money that could diversify so broadly and follow the individual stocks, you are at such a disadvantage to everybody else. I can assure you that when Nvidia dropped the other day by 7% because of potential impacts not being able to ship to China, there are a whole cadre of people that knew that before we knew it. And that means you're at just a huge succinct disadvantage whenever you're investing in individual stocks. And I'm not saying the whole system is rigged, but I am saying parts of it are less rigged than others and you're better off seeking those parts that are less rigged than others. In any event, fascinating to watch this issue of index funds, individual stocks, private equity funds and private companies and where to go. And as exciting as it seems to be able to invest in private equity funds, and as exciting as it seems to be able to invest in private companies, all I can tell you is the grass may look greener, but it's often not. And you're going to do just as far, just as well, putting your money in broad based index funds. As John Bogle used to say. And quite frankly, as Warren Buffett used to say, here's what I'll tell you. They were right. Thank you for listening to the Becker Private Equity and Business Podcast.