A Guide to Investing in Long Shots

Ever since I was a kid, I’ve taken swings at potential home run investments.

When I was around 9 years old, I poured most of my savings into baseball cards and comic books. I thought that if I chose well and cared for them properly, they would provide an excellent return on my “investment.”

I was drawn into this market by stories of rare items, like a 1952 Topps Mickey Mantle rookie card selling for hundreds of thousands of dollars. I thought if I could find the rookie cards of future superstars, I would certainly make a bundle.

I did find some of those rookie cards, including a “rare” 1989 Ken Griffey Jr. But what I did not understand is that thousands of young collectors like me had the exact same plan.

I also didn’t understand that the baseball card companies were printing millions of these things. They weren’t exactly scarce.

The Mickey Mantle card was so valuable because of its extreme, unusual scarcity. At the time that card came out in 1952, nobody guessed it would be worth anything in the future. It was a simple piece of cardboard. So only a few collectors preserved them properly. A mint condition 1952 Mantle recently sold for $2.8 million. If the card companies had printed hundreds of thousands of those cards, and people had preserved them well, they’d barely be worth anything today.

It was the same story with the comic books I bought. Too many copies of “rare” items sold to too many people, all with the same plan.

The approximately 95% loss I took on those baseball cards and comics taught me two important investing lessons. You can’t just look back at what made money in the past and replicate it. And markets are much more complex than they appear at first glance.

Despite the loss, I continued to search for potential home runs. I realized that when you take big swings, you’re going to miss most of the time.

So whenever I found a potential home run, I would invest only an amount that wouldn’t hurt too much if it failed.

Around 2004, shortly after graduating college, I tried trading penny stocks. This “big swing” investment… didn’t go well. A strikeout. But more valuable lessons were learned the hard way. Fortunately, I didn’t risk too much and moved on quickly.

Still, I kept taking big swings. While most of my investments were in midsize growth stocks, I always devoted a small portion of my portfolio to what I call “big swing investments.”

In the years since, I finally hit my first few home runs. In 2006, I built four simple websites, and one of them took off like a rocket. This was a different kind of “big swing.” My investment was mostly elbow grease. But it’s really not all that different than investing cash.

Bitcoin has been my biggest winner so far. I watched it grow from $1 in 2011 to $84 in April 2013. That’s when I finally pulled the trigger and bought it. I saw that there was a good chance it would continue growing as it had been for years. I loved the risk-reward scenario then, and I still do today.

In 2014, I began investing in private startups and have since had two companies I invested in early become “unicorns” (startups valued at more than $1 billion). I expect another five or six to follow suit in the next two years.

It was a bumpy road, but I found a system that works for me. Today, that small portion of my portfolio I dedicated to “big swing” investments is worth more than the rest combined. And I didn’t risk that much to make it happen.

Investments with this type of potential are what we focus on at Early Investing. Today we see such opportunities in cannabis, disruptive startups and select cryptocurrencies.

If this concept is intriguing to you, I encourage you to take some big swings. But remember, do it in a safe and reasonable fashion. Spread your bets out across a dozen or more opportunities, and do your research carefully!

If you keep at it, eventually one or more of those long shots should hit pay dirt. If and when it happens, the winners should more than make up for the losers.

Good investing,

Adam Sharp

Co-Founder, Early Investing