Active vs Passive Investing
When you buy a stock in the public markets, that is passive investing.
When you buy 10% of that public company in the open market and then seek to obtain board seats, that is active investing.
When you buy a REIT, that is passive investing.
When you buy vacant land, build an apartment building, and lease it up, that is active investing.
When you buy a treasury bill and collect interest, that is passive investing.
When you make “hard money loans” to developers, that is active investing.
When you toss some money into an angel deal that others are leading, that is passive investing.
When you lead a seed round and take a board seat, that is active investing.
Both models work, but when you do passive investing, it is best to invest in liquid markets so you can get out when things aren’t going your way.
When you do active investing, you are most likely investing in illiquid markets and you have to invest your time, energy, and intellect to make sure things go your way.
It is hard to “beat the market” when doing passive investing. That doesn’t mean you can’t make good money doing passive investing, particularly over a long period of time.
But like everything else in life, if you really want to make big gains with your investments, you are going to have to invest your time, energy, and intellect as well as your capital.
And that means being an active investor.
That’s how I like to invest and it limits how many investments you can make. It is hard to scale “active investing.”
One of the things I see in the angel, seed, and VC markets is investors and firms trying to scale their investing while pretending to be active investors.
I don’t think that is possible.
You have to either choose to be active and concentrated or passive and diversified. Either model works, but I think you need to be one or the other. It’s not really possible to be both.