This conversation explores whether investing in public stocks and private startups is really that different. The guests argue the core logic is the same: change drives competition, stability drives compounding. They warn against focusing only on big winners like Amazon, which is held up as a model of long-term thinking. Berkshire Hathaway is mentioned as a rare stock worth holding long-term, while Facebook is just cited as an example.
Jason Zweig and Morgan Housel, in Episode 50 of Invest Like the Best, explore the fundamental differences between business and investing. The core argument is that public market investing and private market investing (e.g., venture capital) operate on entirely different logics—public markets favor p
Guests: Jason Zweig (Columnist for The Wall Street Journal, Editor of The Intelligent Investor) and Morgan Housel (Partner at Collaborative Fund, former contributor to The Wall Street Journal and The Motley Fool)
Main Theme: The two guests explore the essential similarities and differences between investing in public and private markets, as well as the core distinctions between business thinking and investment thinking.
Most Weighty Judgment: Morgan Housel argues that the overlap between public and private markets is far greater than most people realize — "If you draw a Venn diagram, with VC on one side and public markets on the other, the overlap is much larger than I expected. Both are governed by the underlying logic that 'change drives competition, stability drives compounding,' only with different weights assigned to these two factors."
Morgan Housel believes that the biggest surprise after shifting from public markets to VC for a year is that the underlying logic of the two markets is highly consistent.
Housel points out that he initially expected to learn an entirely new set of skills, but the reality is, "If you draw a Venn diagram, with VC on one side and public markets on the other, the overlap is much larger than I anticipated. Regardless of the investment stage, scale, or industry, there are always some changing elements that drive competition and some stable elements that drive compounding — these are the two components that make up any investment. VC investors and public market investors simply assign different weights to these two, but it's different cuts of the same meat."
Specifically, long-term thinking, business moats, compounding effects, the impact of fees, and the desires and psychology of LPs — these core elements are entirely interchangeable across both markets. Housel argues that the biggest difference between VC and public markets lies not in investment logic, but in the liquidity mechanism: VC funds typically have a 10-year term with almost no liquidity during that period, which actually becomes an advantage — "In the private market, these decisions are made for you. You don't have to deal with panicked investors coming and going. Once the deal is done, it's done. This actually makes the job simpler."
Jason Zweig adds a counterintuitive perspective: the returns across the three capital stages (early-stage VC, public markets, PE/buyout funds) may not differ significantly after adjusting for leverage and risk. He cites Michael Mauboussin's "three-stage" framework — the early stage nurtures companies, the public market cultivates them, and the PE/buyout market repairs them — and notes: "Over time, I've come to suspect whether the overall returns across these three categories really differ that much. Once you adjust for leverage, and especially for risk, the returns may be quite comparable across the entire lifecycle." He cautions the audience about the "jackpot phenomenon": a handful of VC or PE deals (e.g., Amazon, Dell) have made a few people extremely wealthy, but if returns are properly weighted and failed deals and leverage risk are factored in, the differences may not be significant.
Jason Zweig argues that over the past 20–25 years, a new business model has emerged—which he calls the "West Coast Model"—whose core characteristic is that the CEO simply does not care about pleasing Wall Street.
Citing terminology from James Anderson of Baillie Gifford in Edinburgh, Zweig points out that CEOs represented by Jeff Bezos and Amazon "basically don't care about pleasing Wall Street, don't care about quarterly earnings, have a planning horizon of at least 10 years, and are willing to sacrifice any number of traditional short-term goals to achieve the long-term objectives they see on the horizon." Companies such as Zuckerberg (Facebook), Alibaba, and Germany's Rocket also fall into this category. Zweig emphasizes that this is not hype around a "new economy"—it is more akin to a modern revival of the long-term visions of 19th-century entrepreneurs like Carnegie, Rockefeller, and J.P. Morgan.
Morgan Housel, from a VC valuation perspective, argues that the "unicorn" phenomenon is largely a result of companies delaying their IPO timelines, rather than a valuation bubble. He explains: "In the past, companies went public at market caps of $50 million or $100 million; now they go public at $25 billion, $30 billion, or $50 billion. This makes VC valuations appear orders of magnitude higher than in the past—but much of this is simply a difference in the timing of going public." Moreover, the increase in capital flowing into the VC industry is more reflected in the expansion of the supply of startups rather than a general inflation of individual company valuations—"The bigger challenge is not dealing with higher valuations, but creating a deeper, more specific filter to screen the flood of incoming projects."
Jason Zweig argues that while passive investing is effective, investors who buy index funds for the wrong reasons—as the latest form of performance chasing—face serious risks.
Zweig states clearly: "I don't think there's a debate anymore—indexing works very well over the long term." However, he warns that if the entire U.S. stock market were eventually indexed, that would not be a good thing—though this is unlikely to happen because active investors won't allow it (the arbitrage opportunities are too large). The real danger lies in: "When people do the right thing (indexing) but for the wrong reasons—if someone buys an index fund just as the latest form of performance chasing—those people and their clients will end up very, very sorry."
Zweig cites his definition of risk from The Devil's Financial Dictionary: "Ultimately, risk is the gap between what investors think they know and what they eventually learn about investing, financial markets, and themselves."
Morgan Housel shares his personal journey from a "die-hard stock picker" to a passive investor. He admits that this transition involved years of cognitive dissonance: "Ten years ago, or even five years ago, I was a fairly die-hard stock picker. For multiple reasons, I now believe almost as passionately in passive investing in public markets as I once did." Currently, his public market portfolio consists of only two holdings: the Vanguard Total Stock Market Index Fund and Berkshire Hathaway.
But Housel emphasizes that he is an active stock picker in private markets (VC), and this is not contradictory. There are two reasons: First, the VC market is far less efficient than public markets—"The efficiency of the VC world is roughly equivalent to the public stock market of the 1950s and 1960s." Second, VC funds introduce the philosophy of passive investing into the active realm through broad diversification (Collaborative Fund holds about 140 companies). Housel concludes: "The philosophy that makes passive investing work—broad diversification—can also be transferred to other areas of the investment world."
Both guests agree that distinguishing between "difficult but loved" and "simply not wanting to do it" is the most critical judgment in life, and that sunk costs are the greatest enemy.
Morgan Housel proposes a simple yet practical criterion for differentiation: "Waking up and saying, 'This is going to be really hard, but I still love what I'm doing' is fundamentally different from waking up and saying, 'Why am I doing this?' — these two are worlds apart, yet very easy to confuse in real time." He believes this is precisely what leads to bad marriages, bad careers, and bad investments.
Jason Zweig shares his experience collaborating with Daniel Kahneman on Thinking, Fast and Slow: after working through the night, Kahneman scrapped an entire day's work and said something Zweig will never forget — "I have no sunk costs." Since then, Zweig has adopted the "total destruction" approach: "Once I conclude something won't work, I don't fix it, I don't adjust it — I blow it up. I start from a blank screen and don't look back at what I wrote before."
Zweig also advises "listening to your fear": "If your palms are sweating and you're running to the bathroom frequently, your body is telling you something is wrong. There have been times I ignored that feeling and ended up making mistakes." He quotes a Turkish proverb: "No matter how far you've gone down the wrong road, turn back."
Housel adds Phil Knight's (Nike founder) distinction: "You should always 'give up,' but never 'quit.'" Knight constantly gave up things at Nike that weren't working, but he never quit the overall mission of driving the company forward.
Both guests agreed that keeping one's identity "small" — that is, not tying the self to specific views — is key to rational decision-making in investing and in life.
Patrick O'Shaughnessy cited Paul Graham's concept: "Keep your identity small. You want to be Teflon — let things bounce off you, hold beliefs very loosely, and be willing to change your mind." Zweig added the concept of "identity-protective cognition" from Yale psychologist Paul Kahan — where people judge ideas not based on evidence, but on "whether this idea aligns with the group I belong to" — and noted it is equally prevalent in investing: "If you're a value investor, then anyone with a growth tilt is wrong. If you believe in smart beta, then anyone who doesn't buy it is a fool."
Housel pointed out that the "me, me, me" nature of social media exacerbates this problem — people constantly show how good and smart they are, creating a competitive environment that forces everyone to try to "outdo" each other.
Housel shared his biggest personal opinion shift: from a die-hard stock picker to a passive investor. He admitted this process involved years of cognitive dissonance: "For several years, part of my brain believed in passive investing, but another part resisted because my entire growth as an investor was almost entirely on the active side."
Zweig shared his recent self-correction on a column about the declining number of listed companies. He initially found that the number of U.S. listed companies had fallen from about 7,500 twenty years ago to 3,600, and argued this explained why active management underperformed index funds — but then several readers pointed out flaws in his logic. "I made a basic math error: if thousands of companies disappear, but they are all so small that their combined market cap is equivalent to a corner grocery store, it may not matter to the overall market." He admitted he was "fooled by a large number in the thousands, ignoring that within the overall framework, that thousand-digit figure doesn't represent much money."
| Position | Analyst View | Key Data |
|---|---|---|
| Amazon | Bullish (Zweig cites as a model of the "West Coast model") | ~50,000% gain since IPO |
| Berkshire Hathaway | Hold (the only individual stock in Housel's personal portfolio) | Housel's public market portfolio consists solely of Vanguard Total Market Index + Berkshire Hathaway |
| Neutral (mentioned as a case of the "West Coast model") | Market cap of ~$100 billion at IPO | |
| Alibaba | Neutral (mentioned as a case of the "West Coast model") | Not specified |
| Uber | Neutral (mentioned as a case of the "Default Era") | Not specified |
| Netflix | Neutral (mentioned as a case of the "Default Era") | Not specified |
| Dell | Neutral (mentioned as a case of VC's "jackpot phenomenon") | Not specified |
| Correlation Ventures | Bullish (cited as a case of data-driven VC) | Not specified |
| Circle Up | Bullish (cited as a case of "passive private equity investing") | Collaborative Fund has invested |
1. Morgan Housel: Public markets and private markets are "different cuts of the same meat." Both are governed by "change drives competition, stability drives compounding," only with different weights. Core elements such as long-term thinking, moats, compounding, and the impact of fees are entirely shared.
2. Jason Zweig: The returns across the three capital stages (VC, public markets, PE) may not differ significantly after adjusting for leverage and risk. The "jackpot phenomenon" (a few trades generating outsized returns) distorts perceptions of overall returns.
3. Morgan Housel: The "unicorn" phenomenon in the VC market is primarily a result of delayed listing timing, not a valuation bubble. In the past, companies went public with market caps of $50 million to $100 million; now they go public at $25 billion to $50 billion — this changes the base for VC valuation statistics.
4. Jason Zweig: Passive investing works, but if bought for the wrong reasons (as the latest form of performance chasing), it carries serious risks. "Risk is the gap between what investors think they know and what they eventually find out."
5. Morgan Housel: Distinguishing between "hard but loved" and "simply don't want to do it" is the most critical judgment in life. The former is worth persisting in, the latter should be abandoned immediately — but the two are easily confused in real time.
6. Jason Zweig: The lesson learned from Kahneman — "I have no sunk costs" — once something is confirmed as unworkable, do not repair or adjust, but completely destroy and start over. This is the most effective way to counter the sunk cost fallacy.
7. Paul Graham's principle of "keeping your identity small" (as cited by Patrick O'Shaughnessy): Do not tie your ego to specific views, hold beliefs loosely, and be willing to change your mind. This is key to combating "identity-protective cognition."
8. Morgan Housel: Long-term thinking is "the ability to tolerate nonsense," while quick stop-loss is "zero tolerance for nonsense" — you need both seemingly contradictory abilities. In investing and life, navigating these two extremes correctly is one of the greatest challenges.