Imagine you live in San Francisco, and you just completed a long workday.

There were customer service-related issues that came up without warning. An ongoing internal conflict you’ve been dealing with for weeks. And you have a few personal things on your mind as well.

All you really want now is to eat in front of the TV and go to bed early. A good night’s sleep isn’t going to solve your problems, but at least it won’t make them worse.

Unfortunately for you, a good night’s sleep just isn’t meant to be. Not when you have a parking lot across from your apartment reserved for Waymo vehicles, Alphabet’s self-driving car project.

At four in the morning, those high-tech monsters manage to confuse each other. Which results in them all honking at each other. Repeatedly.

A number of them, it seems, are returning to their parking lot, only to trigger already-parked vehicles’ alarm systems as they back into parking spots. Worse yet, this isn’t the first time they’ve done this.

So much for a good night’s sleep.

Now, Waymo has since told CBS News that it:

… recently introduced a useful feature to help avoid low-speed collisions by honking if other cars get too close while reversing toward us. It has been working great in the city, but we didn’t quite anticipate it would happen so often in our own parking lots.

Moreover, it said last week that it updated its software to combat the early-morning noise pollution.

Even so, it does make me think of one of my golden rules concerning risk: Don’t get involved in an investment opportunity until it’s proven itself to a reasonable degree.

Otherwise, anything can and too often does happen – things you’re not going to like.

A Little Company Called WeWork

Call me overly cautious if you want to or even out of touch. But I’m fully aware of how much money early-in investors can make on new or newly packaged concepts.

The short story is “a lot.” However, there’s a longer story to consider, too, that’s well worth mentioning.

Take WeWork, the company first famously and now infamously co-founded by Adam Neumann. It offered a great spin on office space by renting up real estate, and then re-renting it out piecemeal. That way, it could offer lower rents to a range of entrepreneurs and small- to mid-sized businesses that added up nicely per building.

The concept wasn’t exactly new, admittedly. But it was pushed by a dynamic personality who knew how to grow the business.

Fast.

Founded in 2010, WeWork went on to complete a series D funding round of $355 million in December 2014 – helping it hit a valuation of $5 billion. And by mid-August 2019, it was worth a perceived $47 billion while filing for an IPO.

Early-in investors were very, very happy. Some of them even made money.

But only if they got out before the company crashed a mere month later under a barrage of bad PR. As it turned out, Adam Neumann, dynamic though he was, was an unrestrained, untrustworthy egomaniac.

The result was that investors lost tens of billions of dollars. Some of them never really recovered from the loss – not financially or reputationally.

Nor is that just a cautionary tale. Early-in investing results in losses far more often than rewards.

According to University of Pennsylvania law professor Elizabeth Pollman, co-director of the Institute for Law and Economics at the institution’s Carey Law School, “Approximately 75% of venture-backed startups fail.”

That’s a huge percentage, and Pollman acknowledges that it might be higher still, all factors considered. Some say as high as 90% for startups in general. There are just too many pitfalls a new business can come up against, from untried executives to red tape to money problems to advertising issues.

This is why I almost never invest in them, no matter how much I wish their teams the very best. And I’m even more hard-pressed to recommend them to my readers.

My money and your money mean far too much to me to take on such odds.

Stick With the Tried and True

Going back to Waymo, yes, it’s an Alphabet venture. And that is a big deal.

But do you know how many Alphabet startup ideas have failed? There are hundreds of examples, with some of its more famous letdowns including:

  • Google+, an attempted Facebook competitor

  • Google Buzz, an attempted Twitter competitor

  • Google Offers, an attempted Groupon competitor

  • Google Video, an attempted YouTube competitor (before it gave up and just acquired YouTube instead)

  • Google Glasses, an innovative smart glasses concept that was too far ahead of its time

Do you remember all the hype over that last one more than 10 years ago? It was intense – every bit as much as self-driving cars are today, if not more.

Yet it still went nowhere because there weren’t enough consumers actually interested in buying the product at the given price. The product wasn’t tested, and when it was tested, it failed.

Alphabet itself, of course, is wildly successful though, with more than enough money to throw around at startup possibilities while still expanding its branches that already do make money. To me, this fact begs a very serious question…

Why should I bother backing potential breakthroughs when I can invest in an actual breakthrough that’s tried and true?

For those of you who answer with one word – “price” – I get it. And, for the record, I’m not recommending you buy shares of Alphabet at current valuations.

But there is a healthy balance you can find between value and quality, with both being equally important considerations. That’s why, as I’ve mentioned before, I have a stock wish list of companies I want to buy on temporary price dips… which tend to come around at some point or another.

Just look at two weeks ago versus where stocks are now! Those who bought choice stock in that selloff are sitting pretty today.

A Bird in Hand Really Is Better

What I look for first is a track record of sustainable earnings. The more of it, the better.

I’m earnings-focused. What can I say except that it works?

I’ve seen my savings increase exponentially by studying company histories as opposed to taking riskier routes that require speculation. You know what they say: a bird in hand is worth more than two in the bush.

“They” were talking about opportunities like this, where a proven asset is worth holding onto no matter how big two unproven possibilities might be. You’d be foolish to let go of a “sure thing” to try to catch something so wholly uncertain.

While, who knows, you might be that skilled or that lucky, you’re much more likely to go birdless in the end.

Then, after you’ve established how worthwhile the company is, you take a look at its price: including how it’s traded in the past. Again, history matters.

Going back to the Waymo example (remember I promised more), its history isn’t looking that good. While the Alphabet division rolled out its first fully driverless car in 2015, making the world go “Wow!” it’s since:

  • Been involved in crashes

  • Had to issue significant recalls

  • Is even under Federal investigation for its driving failures

And as for that parking lot honking problem? Despite the software upgrade, the problem isn’t fixed. So those weary San Francisco residents wanting to catch a decent snooze are still out of luck.

Keep this ongoing saga in mind the next time you want to invest in something “disruptive” or otherwise unproven. If you’re Alphabet, I guess go for it.

Otherwise, I’d put my money elsewhere.

Regards,

Brad Thomas
Editor, Wide Moat Daily