The Sucker Is You

There’s a saying: “If you sit in on a poker game and don’t see a sucker, the sucker is you.” Warren Buffet applies it to investing: "If you aren’t certain that you understand and can value your business far better than Mr. Market, you don’t belong in the game."

Buying a dishwasher from Costco is not like this. At Costco, you can trust that whatever’s on the shelves is a pretty good deal.

But if someone on the street offers you a deal on a dishwasher, then unless you’re a dishwasher expert—unless you’re familiar with the particular model of dishwasher, unless you understand its efficiency and reliability and longevity and whatever else, unless you know you’re getting a good deal—well, you’re getting scammed.

The key characteristics of this kind of situation (which economists would call an information asymmetry) are that the counterparty is in it for themselves and they know much more than you do.

If those things are true, then you better deeply understand what kind of deal you’re getting—or else the sucker is you.

Here are some situations where this kind of thinking is useful:

• If you didn’t understand the waiver you signed, assume the terms are maximally unfavorable to you.
• If you don’t know your startup equity will be worth something in an exit, assume it’s worthless.
• If you don’t know your insurance will pay out for X, assume it won’t.
• If you don’t know that “free-range” is a meaningful label, assume it isn’t.
• If you don’t know your carbon offsets will counterfactually reduce carbon emissions, assume they won’t.

Deep understanding doesn’t need to mean doing your own research; it might just mean having trustworthy sources and advisors. But you better know you can trust them.