Howard Lindzon is a well-known tech investor who started one of the biggest social finance sites on the internet, Stocktwits.
But you don’t become a well-known tech investor and the founder of Stocktwits without encountering ups and downs along the way.
On August 4, I sat down with Howard to talk about what he’s learned as an investor and a human over the past three decades and four earth-shattering economic crises. He’s flourished partly because he’s able to see through the panic when the world feels like it’s falling apart.
Spotting trends
Bear markets can be rough on your psyche and your portfolio. It’s hard to see the light with so much darkness around you. But if you look at history, markets have made it out of every crisis they’ve faced, even if that crisis forced society to think and act differently.
To Howard, the way to find the light in past bears was to look for the emerging trends. During the tech bubble, Howard looked into real estate, catching the trend sparked by low rates and financial innovation a few years before it boiled over.
Luckily, when the Great Financial Crisis happened, Howard had his sights set on a new trend: web2. It was a painful time — “chaotic”, in his words — but he could see the foundation of the Internet taking hold.
“I was so bullish about web2 that it allowed me to have my blinders on,” Howard said. “The underpinnings of the next boom were taking shape. We didn’t have iPhones, we didn’t have the App store, and we were just starting to get Amazon Web Services. While everybody was freaking out, there was new leadership taking place.”
During the fallout from the financial crisis, he made some of his first tech investments and started Stocktwits after seeing the power of networking and community on the internet.
Of course, recognizing this can take luck as well as skill. Howard wasn’t a bank investor or employee, and he was in a good enough position financially to think ahead. But if you’re able to realize that market pain is likely to be temporary, you can start visualizing what opportunity lies on the other side.
Staying focused
One theme that Howard repeated was knowing how much risk you can take on during bears. Yes, he may have been able to look for opportunity in past selloffs, but he knew his limits. Howard mentioned the tech bubble made him question the point of trying to beat the market versus indexing to go along for the ride. As it turns out, many investors who took on too much risk to beat a raging market were crushed when the bubble burst. Just surviving a bear without blowing up your portfolio may give you a competitive edge when the storm passes.
“The good news about a bear market — even in a deglobalized, inflationary world — is that there are going to be some incredible trends that come out of it,” he said. “Keep enough energy, capital, and motivation to capture your trend instead of paddling so hard against the tide.”
So how do you stay focused? Howard got through the days of the Great Financial Crisis by talking about it. He wrote on his blog and connected with others on Twitter, back when it was a nascent product. It’s similar to how eToro US CEO Lule Demmissie approached the same crisis — by leaning on friends and meditation to counterbalance the stress from everyday life.
But as you navigate a bear, you need to be cognizant of who you’re listening to, especially in the age of social media, when the noise can be deafening. According to Howard, the number one mistake people make is following too many people, or being over-diversified to ideas.
“You have to be very careful who your mentors are, both in real life and on the Internet,” he said. “You can’t read everything and be in every trend.”
Web3 and crypto
Fast forward to this bear market, which feels especially out of control with high inflation and global turmoil. Howard is 56, so his investing objectives have shifted away from finding the next big thing to protecting his capital. He’s listening to his why and doing what works for his goals and needs in the later stages of his life.
That didn’t stop me from asking about web3, a version of the internet that’s creator-owned and built in a decentralized manner. Howard has been outspoken about his cautious optimism for the space, and he talked about how he’s worried that expectations have outgrown reality. In his view, web2 — or the internet we use today — is like the earliest model of a car. In that analogy, web3 is like the windshield wipers — an innovation that helps the car operate better.
“Web3 is great for people who want to build community, culture, style, fashion, and unique networks, but figure out a way to get paid and profitable early instead of growing to a million users and monetizing later,” Howard said. “That’s the power of Web3: to say you don’t have to be reliant on Facebook and Google and Amazon.”
But if you’re a crypto investor burned by the past several months, remember that vicious ups and downs are part of buying into a young market.
“When you walk into the Dead Sea in Israel, they tell you not to shave your armpits or legs because the salt will bust your ass up,” Howard said. “People do that, and it burns.”
Taking risks can hurt once in a while. It’s part of the process, so be prepared.
You can listen to my entire conversation with Howard here.
*Data sourced through Bloomberg. Can be made available upon request.