Last month, Joe Mauer was inducted into the Major League Baseball Hall of Fame.
Mauer had a sensational fifteen-year career. He tallied more than 2,000 hits, earned six All-Star selections, and collected more trophies than you’ll ever see at the Oscars.
Perhaps most impressively, he had a .306 lifetime batting average. In other words, of the nearly 7,000 times he stepped up to the plate, he got a hit about thirty percent of the time.
That thirty percent statistic has always fascinated me:
If Mauer got a hit thirty percent of the time, that means he failed more than two-thirds of the time. And yet he was one of baseball’s greats.
Hmm, where else can you achieve such remarkable success by “striking out” so frequently?
Today, I’ll reveal the surprising answer.
Thirty Percent (Usually) Doesn’t Cut It
Hitting a baseball is tough. The average fastball pitch last year clocked in at ninety-four miles per hour. Even basketball legend Michael Jordan — one of the greatest athletes in history — could barely get a hit. So if you’re successful thirty percent of the time, that’s impressive.
Still, a thirty percent success rate seems so low. When you fail twice as often as you succeed, things don’t generally turn out so well.
For example, a student who gets two-thirds of the questions wrong on a test will get an F. And if you get two-thirds of your stock trades wrong, you’ll lose a bundle.
But the “math” is different for baseball players…
And as it turns out, it’s different for startup investors, too…
The Rule of Thirds
To see what I mean, let’s run through the “math” of startup investing.
Let’s say you invest $15,000 into a portfolio of startups — thirty investments of $500 each.
If you set up your portfolio using the proven strategies of a professional investor:
- One-third of your investments will likely fail and return nothing.
- One-third will break even, or perhaps return a small profit or loss.
- And the final third will produce a handful of multi-baggers — maybe a 5-bagger, 10-bagger, 100-bagger, etc. To keep the math simple, let’s say the average is a 10-bagger. (Keep in mind: we target a 10x return on every startup investment we make.)
This is the Rule of Thirds. It’s what experienced investors expect when they build a diversified portfolio of startup investments.
Given the Rule of Thirds, what overall returns might an investor expect from their startup portfolio?
Crunching the Numbers
If you invested $500 each into thirty startups, for a total investment of $15,000, here’s what your returns might look like with the Rule of Thirds:
- The first third. $5,000 of your $15,000 went to zero — these startups failed.
- The second third. You broke even on your next $5,000. So you get that $5,000 back.
- The final third. This $5,000 led to an average gain of 10x. It turned into $50,000.
So your $15,000 portfolio is now worth $55,000. That’s more than 3.5x your money!
How to Make the Math Work
But here’s the thing…
To make this math work, you can’t “bet it all on black,” or invest in only a few startups. You need to invest in dozens of startups over time.
It’s like flipping a coin. Every time you flip a coin, there’s a 50/50 chance it will land on heads. But just because you flip it once and it lands on heads, that doesn’t mean it’ll land on tails the next time.
However, if you flip a coin a thousand times, the odds are very good that you’ll get an equal number of heads and tails, or pretty close to it.
It’s the same thing with early-stage investing…
In order for the math to work out, you need to invest in dozens of companies.
That’s how you build a portfolio where you maximize your profits, and minimize your risk.
We’ve Got Your Back
This is where Crowdability can help.
We can help you build a diversified portfolio by introducing you to new early-stage companies every week. For example:
- We send our free Deals email every Monday, which showcases four startup opportunities.
- We publish our premium CrowdabilityIQ reports every Friday. These reports showcase two particularly exciting — and potentially profitable — early-stage companies, and include research to help you make an investment decision.
- Members of our top-of-the line service Private Market Profits get access to our most in-depth investment research. Each month, we publish a prospectus on a startup we believe could potentially deliver profits of 10x or more.
As you learned today, given the “math” behind startup investing, you don’t have to succeed with all of your investments…
Like a Hall of Fame baseball player, even just a thirty-percent success rate can lead you to great success!
Happy investing.
Best Regards,
Editor
Crowdability.com