Many people I know invest in the industry in which they work. I think this is a mistake. You should be diversifying your career risk through your investment portfolio.

Here’s what I mean. I know many people in the ecommerce world who, in addition to working in ecom, invest in public ecommerce-related stocks. Shopify is a favorite, but Meta or Klaviyo are common too.

I have no view on whether these stocks will outperform the broader market index or not–they have in the past but the past is not predictive of future performance.

The problem is by working in ecommerce, you’re already inherently “long” ecom.

Being “long” means you stand to succeed if ecom succeeds. If ecom as a category is successful, that will be a massive tailwind for your career; there will be more cash comp to go around and, if you have equity in a ecom startup, that will be worth more.

The issue is these public stocks are also highly correlated to the success of ecommerce. If ecom outperforms, Shopify is very likely to outperform (and vice versa). So if ecom underperforms, you’ll be hit with a double whammy–not only will your career suffer, but your investment portfolio will too.

Conversely, if ecom does well, your career will benefit and your stock picks will likely benefit, but you’ve essentially doubled down on the same bet. It’s not optimal to bet so much on one outcome.

This actually happened to many of my peers in 2022. For the first time in years, ecom had a bad year. Businesses suffered / were even forced to do layoffs. Not coincidentally, Shopify stock dropped 73%. Meta was down 64%.

The extreme position is to actively hedge your career exposure by shorting the prominent stocks in the industry you work in or, less drastically, overweighting investments which are less correlated with the industry you work in (e.g., an ecom person buying energy or utilities stocks).

But I think that’s a bridge too far. I would–and do–just buy a broad index of stocks like the S&P 500.

But wait. Shouldn’t working in an industry give you unique insight into what companies will succeed in that industry? If your ecom business is built on Shopify and it’s great, isn’t that information you should use to invest? If Meta has been crushing this quarter, shouldn’t you trade on that?

No.

Shopify and Meta are among the most covered stocks (by analysts) in the world. There’s a ridiculous amount of evidence that nearly all of the “unique insight” you have about a company is almost always already priced into the stock price.

Do you love Shopify? Probably ten years ago, a dozen different hedge funds spent $25mm determining Shopify’s exact NPS. I promise you, the market knows Shopify is good.

You can get lucky for a while trying to beat the market but eventually everyone’s luck runs out.

Especially if you’re already exposed to an industry through your career, stay away from investing in it.