The most important things

The single most important criteria: “What’s your competition?” To the extent that you’re able to operate and invest in arenas where there is little or no competition, you get much better deals. Where there are more people, and a lot more deals, you have to accept less attractive returns.

And understand and focus on how supply and demand affect prices, how they affect decision-making, and how they affect risk – it’s Econ 101 but they’re the governing principle of everything. It’s simple.

Upside is interesting, downside is everything

Focusing on the upside is interesting but not productive. Focusing on the downside is what risk is all about. To the extent that you can quantify the downside, to the extent that you understood what risk you’re taking, your chances of survival are much better.

A lot of people get in a lot of trouble because they do a transaction and they don’t understand what risk they’re assuming. Look at the deal and figure out where the vulnerability is; what assumption have you made that has to be right in order for the deal to work?