Andrew Youderian

Liquidity Beats Private Deal Hassles, Even for Savvy Investors

I know a guy who bought Tesla in the early 2010s, close to the IPO. Made a killing. And he'd made a lot of other really savvy bets over the years. So I was excited to have him in the syndicate I was running, investing in small eCom businesses. When it came time for our first deal, I called him up. Good deal. Solid expected returns. He said: "Andrew, do you need the money?" I told him we could close without him if needed. "Then I'm going to sit this one out." I thought he was crazy. Here's what he told me: "I've spent 20-30 years investing. I've done the private deals. Sometimes you do well. But your money is locked up for years. There are K1s, tax headaches, hassles you don't see coming." "I love the public markets. I can buy whenever I want. Get out whenever I want. No headaches. And the returns are consistently good. Sometimes great." I dismissed it at the time. Thought it was lazy thinking from someone who could afford to be lazy. Our deal ended up returning slightly above market. But when I factored in the years of work, the time the capital was locked up, and the operational headaches? It didn't come out ahead, especially for me running the syndicate. Everyone talks about risk-adjusted returns. Almost nobody talks about hassle-adjusted returns. For most eCom owners, the public markets are the best answer for investing outside your business. Broad index funds. 70% US, 20-30% international. Low fees. No drama. Hedge funds? Private Equity? Angel investing? Exotic land investments? Sexy. Exciting. Fun to talk about at dinner parties. And most under perform, especially if they are open to the public. Most definitely underperform on a hassle-adjusted basis. I like 90% boring, 10% bold as an investing maxim. Take a small slice and make 1-2 concentrated bets where you have outsized expertise. But the core? Keep it simple. Keep it liquid. Keep it boring. The smartest investors I know figured this out long before I did.