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by charlesdm 3768 days ago
Five years is a long time, a lot can happen in five years.

I've made the mistake of not selling an asset fast enough, and that probably cost me $100k-150k (easily!). What might look great today might not in two years.

3-4x does sound reasonable for something that is:

1. Illiquid

2. Taxed as income -> less favourably than capital gains on stocks

3. Requires work, every, single, day

> If I sold at 4x and then said, where can I put that money and get a nearly guaranteed 25% return, I don't think I could find that. That would be risky.

Your SaaS business might get hit with a multi million dollar lawsuit tomorrow and go bankrupt because of it - nothing is certain. But you can definitely get 15-20% returns with proper risk management when investing with your own money. And if structured properly, those gains are capital gains, meaning you pay (a lot) less tax.
1 comments
ryanwaggoner 3768 days ago
But you can definitely get 15-20% returns with proper risk management when investing with your own money.

I wish to subscribe to your newsletter.

Seriously, mind sharing some of your secrets for where you're finding these definite returns of 15-20% with proper risk management?

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charlesdm 3768 days ago
As a simple example: the average return of the S&P500 over the last five years has been 16%.

2010: 14,82% 2011: 2,10% 2012: 15,89% 2013: 32,15% 2014: 13,52% 2015: 1,36%

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ryanwaggoner 3759 days ago
That's six years, not five. And the annualized return (geometric mean, not mean) is 12.85%, not 16%.

Worst of all, you picked a short outlier period to consider. If you instead look at the trailing ten years of Feb 2006 to Feb 2016, the annualized return is 6.3%, even with dividend reinvestment. And that's without accounting for inflation, making your real return closer to 4.5%.

Bump up to look at the last 30 years and with dividend reinvestment and adjusting for inflation, you get about 7%. I think that's probably a realistic target to shoot for in the very long run (decades).

Source: http://dqydj.net/sp-500-return-calculator/

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exclusiv 3768 days ago
Good points on the tax benefits, however the S&P historically is about 10% over the long haul. 16% over the past 5 years is irrelevant. I have no control in the S&P.

I have control in my company. I'd rather rise or fail due to myself than say - the market did this.

I max a 401k for tax purposes and do state muni-bonds for safe, decent tax-free monthly dividend income while I decide what current or new business of mine to invest the cash in. The market is basically tax-friendly gambling.

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