Following the Herd, or Forging your own Path

2001 was a year of innovation, and devastation - most of us still remember where we were on the morning of 9/11/2001. But, it was also the year that gave us our first iPods, Playstation 2s, Halo games, and Harry Potter + Lord of the Rings movies.

2001 was also my first real job - at the Burke, VA Target. Over three years, I worked full-time during summer/winter breaks, and every Saturday during the school year. I ended up in every role - from cashiering to guest service (customers were always “guests”) to working every floor section and even pushing in carts. Although it was the lowest paying job I’ve ever had, the lessons (still) pay off today. 

One of the most interesting observations came as a cashier - and informed how busy (or slow) my day would be. Target used to (and still does) have 2 rows of check out lines, and usually 10+ columns of checkout lanes (self-checkout was many years away). The store would also go through waves of activity - sometimes it would be dead, and other times, lines would stretch into the greeting card/toiletry section. However, the 100% consistent behavior was guests would:

• Always go to the lanes closest to the end of the merchandise (i.e. not want to walk past other registers)

• Ignore the lights on the registers - even if the light was off, the lane was always open (and you’d have to remind them that you were closing)

• Queue on the busiest lanes, and form lines - ignoring the almost always empty (or much less busy) registers closer to the door

The cashier managers almost always took the lanes by the entrances - furthest away from the busiest registers – mainly because it was easy to hop on/off. If I was able to snag a register by the door, I also knew I would be pushing in carts – since I’d be less busy. 

You’re probably wondering where I’m going, and why I’m talking about lines at Target. But, there are two main takeaways. The quickest takeaway is that you should always walk towards the doors, and away from the initial registers at Target (or any other store) to check out. But, the other takeaway is that our human tendencies are to find the path of least resistance, reduce perceived risk, and follow the herd. It’s also why most people travel to the same places, and invest in the same things – at the same time.

There are two other corollaries with this analogy - both might be pertinent right now:

1. Angel investing - I have lots of feelings about SPVs, and angel investing, but I’ll keep this brief – if you’re seeing a “Tier 1” VC led deal, it’s probably not one of their better deals. While the herd lines up at these deals (even now), they should find other registers, or other stores. You’re going to be waiting a while to get your money back, or lose a lot of time/money, by following the herd. In VC, following the herd (as an angel investor)  is a dangerous game. You’re far better off finding a fund, or group that does their own unique deals - and does not just wait in line for the same, generally crappy deals (that everyone else sees, and can invest in). This herd mentality and blind attraction to “Tier 1” led deals is one reason why I think most angels should not pick their own deals. Venture investing takes such a weird combination of experience, exposure, and hunger that most angels will almost never find any real alpha. 

2. Crypto “investing” - I told LPs last week that I thought bitcoin would set new records ($100k feels very plausible soon) – but was also staying away from it all. The crowd is diving back in, euphoria is back (for now), and investors are following the herd again. Given the frenzied atmosphere and lax mentality around a possible crash, $70k is the next immediate target, and $100k feels very doable too. But, I’ve never had laser eyes, or been a believer - you can guess how I feel about the category longer-term. 

I was just in a Target this weekend, saw the crazy checkout lines (self-checkout was a mess), and made a beeline for guest service. I knew guest service is essentially another check-out line - and is also usually helmed by an associate with more experience. While others sat fuming in the increasingly long lines (and continued piling up in the lanes closest to the aisles), I was out of the store in 30 seconds. 

It’s scarier to forge your own path, and walk away from the herd. While following the herd can pay off in the very short term, it can also backfire in truly explosive ways if you hold the bag (or are investing in illiquid deals). The more nervous I’ve felt, or the crazier I’ve felt with my own deals, the better the outcome. If I’m seeing something others can’t, or won’t see, I might be onto something. After all, if you’re one of the few believers in something, you’ll also reap the benefits if this vision turns into even a partial reality. My best investment was a deal virtually no one believed in - and one that initially made me a bit nervous. However, they were actually on to something very tangible, and are now off to the races. Looking, and investing in unexplored, or undervalued areas pays off - especially if you know where to look.