Why family offices should never invest in what they don't understand

Every investment fashion eventually produces a moment where an investor is told they are being left behind. The simplest discipline in a family office is to say no to anything that cannot be clearly explained to the family.

Investment committees in single family offices occasionally turn into arguments. One recent one, in which a Westwick partner was sitting, spent most of its time on a crypto-asset that only the fund manager pitching it appeared to understand. Everyone around the table was assured that money was being made — that "altcoins were low," that "now was the time to build a position," that "the opportunity would not last."

In modern terminology, we hear a lot about FOMO — the fear of missing out — fuelled over the past decade by the rise of so-called "Bitcoin millionaires" and the steady drumbeat of stories about people who got rich by acting fast on something nobody else understood yet. That narrative is powerful, and it pulls hard at investment committees. But it forgets the most basic rule of investing: you do not invest in what you do not understand. The fact that someone else made money does not mean the asset is sound, the thesis is real, or the timing is yours. FOMO is an emotion. It is not an investment case.

While our partners do not provide investment advice, we do, in that kind of room, slow the conversation down. When a family starts to shift from investing toward speculating, someone needs to ask the naïve questions until a real answer appears. What is the actual differentiating value of this asset? What is the underlying thesis? What is the price at which we are a buyer, and the price at which we are a seller?

When those questions do not produce crisp answers, we advise the family to let the train leave without them. The cost of missing a fashionable trade is known, bounded, and modest. The cost of being invested in something the family cannot explain, when the cycle turns, is not.

This applies to more than crypto. It applied to the internet bubble, when companies were being valued at twenty times their accumulated losses, and advisers, terrified of being left out, found creative ways to justify it. Every cycle produces its own version. The family office discipline is always the same: if we do not understand it, we do not invest.

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