A version of this article previously appeared on the Wall Street Journal.
As crazy as it sounds, surfing has made me a better investor. The sport involves a surprising amount of downtime between sets. During the many hours I have stood in anticipation of the next wave (as noted in You’re Never To Old To Learn To Surf, I’m an old guy on a standup paddle board), I have come to realize that surfing and investing share a number of surprising corollaries.
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Gnarly Corollaries Between Surfing And Investing
1. Biggest Sets – No matter how flat the water may currently be, there is always another wave brewing further off the coast. The largest sets of wave typically appear after the longest lulls in activity. Patience rewards both surfers and investors.
2. Last Wave – Novice surfers chase the previous wave, rather than anticipating where the next waves will break. Seasoned surfers develop an eye for swells which subtly build in the distance, just as experienced investors anticipate future trends, instead of following current ones.
3. Location Matters – Some surf breaks are more consistent and offer more rideable waves than others. Unfortunately, investors and surfers can be lemmings, which results in good breaks getting over surfed and market sectors attracting too much capital. Like surfers, investors should similarly be willing to invest off the beaten path.
Knowing when to break the rules of your investment thesis can lead to big wins. For instance, at Rincon Venture Partners, we typically do not invest in consumer facing companies. However, we made an exception at Tradesy, because we were so impressed with its Founder, Tracy DiNunzio. Although the venture’s journey is not completed, we are very pleased that we deviated from our traditional b-to-b SaaS focus.
4. All In – Once it is your turn in the lineup, make the most of your ride. If you bail on a rideable wave, you may have to wait an extended period for another opportunity and it is unlikely your fellow surfers will forgive the fact that you let a good wave pass by. Likewise, investors who quickly abandon struggling companies seldom prosper because the entrepreneurial community knows that they cannot be counted upon when the going gets tough.
5. Hard – Surfing is more difficult than it looks. When done well, the surfer appears to be in a relaxed, Zen-like state. Likewise, successful investing appears to the casual observer to be easy in hindsight. It isn’t. I have turned down opportunities to invest in several companies that later proved to be huge successes. However, at the time I reviewed the deals, the opportunities did not appear to be credible, let alone lucrative.
6. Sharing – Many surfers do not want to share their waves. However, riding a wave with another skilled surfer can be fun and challenging, requiring each rider to cut back and forth in syncopation. In a similar fashion, some old-school investors attempt to push other investors out of their deals. I prefer a collaborative approach whereby we build syndicates of like-minded investors. This results in a more stable capital pool for the company and a Board with a greater diversity of backgrounds, which leads to more informed decisions.
7. Luck – Beginning surfers point their boards toward the shore and randomly paddle when a set appears. This strategy occasionally works, when the timing and momentum of a wave allows the neophyte to get a ride. Although this is a legitimate way to learn basic surfing skills, catching a wave in this manner should not be confused with knowing how to surf. This is equally true in investing world, where achieving sporadic success via a “spray and pray” strategy does not equate to mastering the art of investing.
8. Practice – Surfing is an experiential, not an academic, exercise. Time in the water matters. Trying, failing and trying again is the only way to become a proficient surfer. Investing is a similarly hands-on affair. Self-aware investors relish their mistakes, knowing that each setback contributes to their ultimate success.
9. Harsh Self-awareness – Understanding why you missed a wave is crucial. It is impossible to avoid future mistakes if you don’t understand why you failed or if you constantly blame exogenous forces (this board sucks, these waves are weak, etc.). Correspondingly, in both surfing and investing, learning from your mistakes requires intellectual honesty and removing your ego from the outcomes.
10. Aggressive Yet Friendly – Mature, self-assured surfers exhibit a congenial demeanor with their fellow riders, yet they also assert their position in the lineup and do not allow others to knock them off a wave. In the same vein, investors should also work collaboratively, but not shy away from potential conflicts.
11. Once A Snake – When a surfer takes off in front of one of their brethren and steals a wave, it is called “snaking.” In both surfing and investing, if someone snakes you once, they will do it again. Don’t invest (or surf) with snakes.
12. Kelp Reading – Skilled surfers watch the kelp which lies beyond where waves the break. The subtle rise and fall of the kelp alerts the knowing eye as to where and when a swell will form. This ability allows the surfer to select which waves to pursue. Poor wave selection results in a frustration day of surfing. Veteran investors develop a similar ability to read markets, ignoring overly hyped fads, while investing in long-term, sustainable trends.
13. Position – Wave selection is important, but if coupled with poor positioning, the novice surfer will spend most of her day chasing waves the role under her and getting pummeled by waves which crash into her. Experienced surfers anticipate where and when a wave will peak and begin to curl, just as successful investors understand that properly timing their entry into an emerging market can significantly improve their chances of success. For instance, numerous investors lost hundreds of millions for over a decade in the ever-emerging mobile Internet space. It wasn’t until 2007 that the iPhone finally cracked the code and made handheld Internet surfing a reality.
14. Proprietary Surf – Surfing is intrinsically competitive, as surfers often outnumber the rideable waves. This reality has fueled the creation of surf havens, like Hollister Ranch, which offer owners year-round, nearly flawless surf, while keeping non-owners out. Investing is similarly competitive, which is why savvy investors create trusting relationships with entrepreneurs to ensure a constant flow of proprietary deals.
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Image: FREDERIC J. BROWN/AFP/Getty Images