Nivi: For the past few episodes, we talked about why you should angel invest and how to get proprietary dealflow by building a brand. Now let’s talk about judgment: how important it is and how to develop it.
Good entrepreneurs don’t want to be associated with bad judgment
Naval: In the long-term, having good judgment is critical. Without it, you’ll end up with a bad portfolio; other investors won’t back you; you’ll lose your money; and your brand will suffer. Good entrepreneurs don’t want to be associated with bad judgment.
At the end of the day, judgment is the single most important thing. It’s more important than access to deals and access to capital.
If you have poor judgment, you won’t know it
The problem with judgment: Everybody thinks they already have it. That’s because your ability to assess your own judgment is subject to your level of judgment.
If you have poor judgment, you won’t know it. This cognitive bias is called the Dunning-Kruger effect after psychologists who popularized the idea. It’s also common sense. People who are not that intelligent usually don’t know it. It’s partly an ego defense mechanism.
It takes five to 15 years to know if you have good judgment
Furthermore, you might have good judgment in certain areas and poor judgment in others. You might have good people judgment but lack market judgment. The only way to know is to look over a long period of time. Unfortunately, in early-stage investing it takes five to 15 years to figure out if you have good judgment.
The first thing to do is be honest with yourself about your own judgment. We’ll walk through a plan to calibrate and improve your judgment over the long-term.