A Venture Capitalist’s Advice on “Regular” Investing

Man, I couldn't wait for this one! The September 2008 issue of Condé Nast Portfolio was featuring personal-finance advice from Alan Patricof! Alan Frigging Patricof!

The father of…

The veteran of…

The…

Well, no, I didn't actually know who the heck Alan Patricof was, but the subtitle of the article dubbed him a "[v]enture capital veteran" and the introduction said he was a venture capitalist "before the term even existed." That's good enough for me to be curious what his advice would be for, relatively speaking, "regular" investors.

I tend to think of venture capital investing as high-risk, high-reward. Being prepared to make 20 investments in which you hit one major home run—and lose your shirt on most of the rest. Strictly for the wealthy. So I was kind of surprised that the first few bits of advice that Patricoff offered all seemed fairly conservative to me. The article started by asking Patricof what he would do with "an extra $100,000." This seems like a very useful question to be asking, though I must admit it is a bit hard to think of having $100,000 and deciding to call it an "extra" $100,000. I can, using the power of positive thinking, imagine having $100,000 at all; and I can imagine having $100,000 that I was willing to invest. But I'm not yet to the point where I can see myself with $100,000 that I look at and think, "What will I do with this extra $100,000?"

But I digress.

In any event, Patricof responded first by saying:

I certainly would not invest everything immediately. I would do it cautiously, on a gradual basis.

And then he described an investment mix that felt conservative to me, although he noted that the answer should depend on one's age and net worth:

• 40% in stocks, including international

• 25% in convertible preferred or convertible debt

• 25% in 15-year federally backed CD with a 6% return

• 10% in cash—"to take advantage of any further decline in the market"

I thought this was kind of a nice reality check. Venture capitalists are not necessarily all high flyers, willing to make big bets with big money and equally willing to take big losses, in the way that I might romanticize them. Many may be savvy business people who hate big losses, but take them in calculated ways—and like Patricoff, may even be conservative in day-to-day investing. I read Patricoff's advice as traditional and fundamental, suggesting that one cannot time the market and should not try to time the market, this being the reason the lump sum of money should be invested "cautiously, on a gradual basis." And I see the investment mix he suggested as quite conservative, with a much lower proportion of stocks overall—and by consequence, a much lower portion of international stocks—than many investment mixes I have seen recommended, particularly those for younger folks or for those who are more aggressive.

As for more specific thoughts about areas or sectors that may be good for investment, Patricof mentioned the following:

• alternative energy—says they are going to "be much bigger in the coming years"
• Internet—says it is going to be the "primary way of getting information for a long time"
  
• I.T. and software services—says these are important for their productivity boost
  
• mobile phones—says they will be "ubiquitous and deliver services that will touch every aspect of our lives"
  

For more from Alan Frigging Patricoff, check out the September 2008 issue of Condé Nast Portfolio.

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