Let’s first level-set. Private asset classes are investments that aren’t publicly traded—things like real estate syndications, private credit funds, private equity, venture capital, hedge funds, or crypto funds. These are usually pitched to “qualified investors,” meaning you need a certain income, net worth, or professional background to even be allowed in. They’re illiquid, disclosures are far less stringent than in public markets, and the risks are harder to see.
Here’s the issue: these deals are often pitched as if they’re safe paths to 15%+ returns. To be clear, saying any investment is “risk-free” or “guaranteed” would cross ethical and even legal lines. But in my personal experience, many salespeople have honed their craft so well that even without those words, investors often _leave the meeting believing_ the deal is risk-free and guaranteed. The pitch is designed to feel that way, even if the disclaimer slide says otherwise.
The reality is simple: in America, the closest thing to “risk-free” is the yield on short-term U.S. Treasuries—around 5% today. The S&P 500 averages ~10% annually, but with volatility. If someone is showing you 15–30% projected returns, those numbers are based on _everything going perfectly_.
**The Risk/Return Ladder of Investing (Advertised)**
* Treasuries: ~4–5% today. Lowest risk.
* Corporate Bonds: 4–6%. Low risk.
* High-Yield Bonds: 7–9%. Moderate risk.
* Private Credit Funds: 8–12%. Moderate to high risk.
* Public Stocks (S&P 500): ~10%. Moderate risk.
* Real Estate: 15–17%. High risk.
* Private Equity Funds: 15–20%. Extreme risk.
* Venture Capital / Angel Investing: 20–30%. Super extreme risk.
Remember: these numbers are “deck math,” not reality.
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## **The Gell-Mann Amnesia Effect in Investing**
This is where the **Gell-Mann Amnesia Effect** comes in.
Coined by Michael Crichton, it describes when an expert reads an article in their field, spots glaring errors, and dismisses it—but then flips the page, reads an article outside their domain, and treats it as gospel.
That’s me with investing. When I see a pitch in text messaging software—my domain—I can pick it apart instantly. Market assumptions, unrealistic timelines, made-up multiples… I can re-underwrite the deal and almost always conclude there’s no chance of return, despite the slides promising 5–10X outcomes.
But then I see a real estate deal, or private equity deck, or crypto fund. Suddenly I flip through the slides as if they’re fact. 15% IRR on a value-add multifamily? Great. 20% in a private credit fund? Sure. My skepticism disappears the moment it leaves my area of expertise.
Looking back, that’s why I’ve done dozens of real estate investments but not a single software one. I know the risks in my field too well, and I’m blind to them elsewhere.
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## **The Illusion of Expertise**
Some argue: “But I’ve run a successful company—I can vet these deals better than most.” My advice? Sit down with a 20-year veteran of that asset class and watch them pick apart the same deal. You’ll quickly see how little you know.
When I tried, I realized most of my diligence outside my field was _performative_. I asked questions, looked at numbers, thought I was being smart. But I lacked the scars and context to actually evaluate risk.
That’s why my thesis is blunt: **I am not qualified to vet investments outside my core zone of expertise. Period.**
If I still write a check, I have to admit: I’m gambling, not investing.
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## **The “Smart Money” Trap**
So what about following the experts? The “smart money”?
I thought the same way. I hired consultants, joined investor groups, leaned on platforms that claimed to only accept 1 in 100 deals, listened to advisors, even let crypto “whiz kids” allocate for me. My thinking: let them weed out the bad, and I’ll only see the good.
Here’s reality:
* **Consultants** vetted deals that defaulted despite promising “conservative” 17% IRRs.
* **Crypto picks** went to zero.
* **Online platforms** were hit-or-miss, and industry veterans later laughed at my belief they reduced risk.
* **Investor groups** often turned out to be just as clueless, sometimes “LARPing” as professionals.
Even when I thought I was riding shotgun with the smart money, I wasn’t. A perfect example? **Theranos.** Hundreds of millions were raised from sophisticated investors, many of whom weren’t doing diligence themselves. They simply trusted others had already done the work. The book _Bad Blood_ is a masterclass in how even experienced investors can fool themselves by following the herd.
That’s when I realized: my ability to pick _which experts to trust_ was no better than my ability to pick the right deals myself.
And behind it all? Incentives. Advisors earn fees when you invest. Platforms earn a cut when you invest. Investor groups need deals to justify their existence. Everyone benefits when you write a check—except you, if it goes south.
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## **The Bottom Line**
I wrote this as a reminder to myself and a caution to friends.
If you’re investing outside your expertise, relying on decks and intermediaries with misaligned incentives, you’re not investing—you’re gambling.
And that’s fine—**as long as you admit it.**
Thankfully, my friends and family once gambled on me, and it changed my life. So I don’t want to discourage taking gambles entirely. But before you write a check, be brutally honest with yourself: is this an investment or a gamble?
If it’s a gamble, treat it like one. Expect losses. Size the bet accordingly. Don’t lie to yourself about the odds. The danger isn’t gambling—it’s _thinking you’re investing when you’re really gambling._ That’s when regret, guilt, and trust issues creep in.
Knowing the difference may save you a lot of money, relationships, and peace of mind.