Calibrate Then Improve Your Judgment
Prove whether your investing judgment is real before you try to sharpen it.
- Difficulty
- Advanced
- Time to result
- ~ongoing to results
- Steps
- 6
- Confidence
- 85%
Judgment is the single highest-leverage input in early-stage investing, and it is also the hardest thing to measure about yourself: poor judgment is invisible from the inside, and the real scoreboard takes five to fifteen years to arrive. The method splits the problem in two. Step one is calibration — get an honest read using proxies you can actually observe: later-round markups, whether proven investors pile into rounds behind you rather than ahead of you, and direct questions to high-judgment people about where your weaknesses are. Each proxy is imperfect, and markups in particular measure your taste in other people's taste. Step two is improvement — deliberately assemble a circle of humble, well-read, low-ego, first-principles thinkers who reason from the ground up, and accept that groupthink and socially popular positions are what erode judgment over a career.
Origin
Extracted from Naval — Naval Ravikant and Nivi's angel-investing series, originally published as short Spearhead episodes and collected into a two-part theory of angel investing.
Core principles
- 01Judgment matters more than access to deals or access to capital.
- 02Your own judgment is subject to your own judgment — poor judgment cannot see itself.
- 03Judgment is domain-specific: good people judgment does not imply good market judgment.
- 04Real feedback in early-stage investing takes 5-15 years, so you need proxies in the meantime.
- 05Proxies that measure other people's taste calibrate your popularity, not your judgment.
How to run it
- 1
Accept that you cannot see your own judgment
Start from the assumption that your judgment is unmeasured rather than good. Poor judgment is self-concealing, and in early-stage investing the honest scoreboard is 5-15 years away.
Pro tip Write down your thesis for each deal at the time you invest, so a future version of you has something falsifiable to grade.
Watch out By the time your ten-year results arrive, the industry may have changed enough that being right about the old market proves nothing about the new one.
- 2
Split judgment by domain before you score it
Separate people judgment, market judgment, technology judgment and product judgment. You can be genuinely strong in one vertical and blind in another, and a single overall score hides that.
Pro tip Score each domain independently and diversify hardest in the domains where you have the least evidence.
- 3
Use markups as a taste proxy, and know what they measure
Track whether top firms come in behind you at higher prices. This is a real signal, but it measures how well you predict other tastemakers, not whether you are right about the world.
Pro tip Markups still have practical value: if you can predict what VCs fund, your companies get funded and gain an advantage from the funding itself.
Watch out This proxy breaks entirely on genuinely novel bets where no downstream round exists to validate you — you have to make that call yourself.
- 4
Count only the investors who arrive after you
If proven investors enter the round behind you, that is a reasonable indication of your judgment. If they were in front of you, you were probably keying off them.
Pro tip Keep a simple ledger of who was in the round before and after your commitment; it makes self-deception harder.
Watch out Do not count deals where you saw a big name on the cap table before deciding — that is social proof, not judgment.
- 5
Ask for weaknesses, not for a verdict
Never ask whether you have good judgment — polite people will always say yes. Ask specifically where your weaknesses are, and only ask people who demonstrably have judgment themselves.
Pro tip People with good judgment tend to have it across all aspects of life, which makes them easy to identify outside of investing too.
- 6
Improve by curating who you think alongside
Deliberately surround yourself with brilliant, contrarian, first-principles thinkers who reason from the ground up and rely on their own authority. Over a career, this is the mechanism that compounds judgment.
Pro tip Prioritise people with technical or scientific training who have worked where real-world consequences, not social approval, provide the feedback.
Watch out The cost is popularity — groupthink, over-socialisation of judgment, and chasing politically or socially acceptable positions are exactly what degrade judgment over time.
In the wild
Naval points to the PayPal mafia as a group famous for being insular, strange and politically incorrect. Many of its members are unpopular and unafraid to hold unpopular viewpoints, but they deeply respect each other's insight and judgment. Peter Thiel is the archetype: nobody wants to debate him head to head because he is contrarian and reasons from first principles. The group is offered not as a social model but as a mechanism — spend a career among brilliant contrarian first-principles thinkers and your judgment compounds, at the price of being widely liked.
→ A durable improvement in judgment, purchased with social capital rather than money.
Calibrating on later-round markups works while there is a downstream VC round to validate you. Naval notes that this breaks precisely when it matters most: when Bitcoin was first starting up it was incredibly strange, nobody understood it, and there was no subsequent round of VC funding to bet on. In that situation the Keynesian-beauty-contest proxy provides nothing and you have to make the decision yourself — which is why markups can never be the whole calibration.
→ The investor learns which proxy to trust in which regime, instead of over-fitting to institutional taste.
Common mistakes
Treating markups as proof you were right
Markups are a Keynesian beauty contest where each judge is rewarded for what the next judge thinks. They make you a good arbiter of future taste, which is not the same as being right.
Asking whether you have good judgment
Polite people will always tell you that you do. The only useful version of the question is where your weaknesses are, asked of someone whose own judgment you have reason to trust.
Socialising your judgment into the consensus
Groupthink, over-socialisation and picking positions because they are socially or politically popular are the main ways judgment decays over a career. People lose money chasing what they wish were true.
Is it for you?
Best for
New and mid-career angel investors who want an honest read on their decision quality before they scale their check sizes.
Not ideal for
Late-stage or public-market investors who already have decades of financial data and can substitute diligence for judgment.
From the transcript
“Step one will be calibrate judgment, step two will be improve judgment.”
“The only way to tell if you have good judgment is to look over a very long period of time.”
“but ask them where your weaknesses are”
From the episode
How to Angel Invest, Part 2