Four months ago I purchased a handful of long range Put options on the S&P500. It felt like the market music had been playing for too long, plus the experts were suggesting that a correction was overdue. If there’s one thing I learned over the years, it’s that my market timing is consistently wrong (which is one reason I’m a lot more comfortable in the VC world with 10-year time horizons). Yet I couldn’t pass up the opportunity to purchase a little inexpensive insurance. My timing once again was wrong of course, as since then the stock market continued to regularly break new records… until this week. In light of the plummeting over the past couple days, naturally, I’m kicking myself for not having bought a few more of those Puts, or at the very least added to my position as the S&P 500 continue to soar and rendered the Put options even cheaper. The spread of the coronavirus appears to be catalyzing the prophesized market correction.

Had I been paying more attention, I would have reasoned that for the cost, those Puts represented a hedge too cheap to pass up, and hence I should have purchased more. I probably could have made the trade with very low carry to boot. So now I have the bragging rights of making the right call on the insurance, but I mangled the magnitude.

I wasn’t paying that much attention because, frankly, I had too many other things on my mind. First and foremost, I was focused on my VC portfolio, my obligations to my partners, reviewing new deal flow, delivering for my LPs, and all the other ancillary activities related to that. So if there’s one obvious lesson here, it’s to play to your strengths. I should delegate the macro trading to the professionals and focus on what I’ve learned to do over the years.

Venture capital investing is not trading. I’ve trained myself over the years to do the former, with numerous scars and invaluable lessons to show for it. In my opinion, venture investing well requires cultivating an investment thesis and consistently challenging that thesis over the duration of a fund. It requires a lot of problem-solving, both at the strategic level for each specific investment, but also at the broader level across the entire portfolio: when to double-down, when to preserve optionality, when to “find a solution,” etc. Overall though, it requires a high degree of engagement with each specific portfolio company, which naturally can generate a certain attachment with each startup and the entrepreneurs who run them. This intimacy in turn must be balanced with a more holistic view of the entire portfolio in order to generate returns for the fund in its entirety.

In trading, on the other hand, intimacy with the underlying asset could be more of a liability. Short term performance is what matters. Traders are much better equipped than VCs to quickly reverse positions or cut and run when a trade isn’t playing out as planned. I am not wired to do that very well. I am fascinated by the personalities who make good traders. In the end both traders and VCs are measured by their investment performance (IRR). One key difference is that the trader’s IRR is measured quarterly or even monthly, whereas the VC’s is measured in years. I do not envy traders for this reason.

Venture investing is also different from long-term value investing (à la Benjamin Graham or Warren Buffett). Sure, the time horizons are similar. However, I once heard a smart person say that long-term value investors are betting that things won’t change, and that the price of an asset will eventually revert to its intrinsic value. Venture capital, in contrast, bets on radical change. Play to your strengths.

I realize that this is my second post in a fortnight on the coronavirus. It has certainly been on mind, both for the economic implications and more importantly the health concerns for susceptible segments of the populace. I wish the best to anyone directly affected.