Peter Thiel is one of the most successful private investors of the past two decades. He was a co-founder of PayPal, one of the first investors in Facebook, and most recently co-founded Palantir. Today, Thiel has an estimated net worth of $7.2 billion.
Thiel has been outspoken about his approach to investing, even writing a book on the topic called Zero to One: Notes on Startups, or How to Build the Future. We’ll break down some of the key takeaways of Peter Thiel’s advice for investors.
Peter Thiel’s Investment History
Peter Thiel started his professional career as a lawyer but left the law practice in 1993 to work as a derivatives trader for Credit Suisse. A few years later, he raised $1 million from family and friends to launch his own venture capital firm, Thiel Capital Management.
Thiel’s breakthrough success came in 1999, when a company that Thiel managed launched PayPal. PayPal went public in 2002 and then sold to eBay for $1.5 billion, netting Thiel $55 million.
In 2004, Thiel invested $500,000 in Facebook in return for a 10.2% stake in the then-new company. In 2012, when Facebook went public, Thiel sold most of his shares in the company for more than $1 billion.
Thiel also launched Palantir Technologies in 2003, and he was the company’s largest shareholder at the time of its IPO in 2020. Thiel sold more than $500 million worth of Palantir shares in 2021-2022 but remains the company’s second-largest shareholder.
Peter Thiel Investment Advice
Peter Thiel has proven to be adept at creating and investing in companies that have exploded in value. While his biggest bets have been as a venture capitalist rather than an investor in public markets, his investment advice can still be very useful for everyday investors. Here are a few of Thiel’s key pieces of advice based on Zero to One and interviews Thiel has given over the years.
1. Look for Companies That Dominate a Niche
One of the themes of Thiel’s investments is that he looks for – or creates – companies that fill a niche. PayPal filled a niche for digital payments as ecommerce began to grow and Facebook filled a niche for creating online communities.
Thiel sees companies that can identify and dominate a niche as poised for success. “The most successful companies make the core progression – to first dominate a specific niche and then scale to adjacent markets – a part of their founding narrative,” he says. In other words, the best companies first fill a specific demand and then expand from there.
2. Monopoly Businesses are Exceptional
Thiel emphasizes the importance of “monopoly” businesses in much the same way that investors like Warren Buffett talk about the importance of moats. As Thiel puts it, “every business is successful exactly to the extent that it does something that others cannot do. Monopoly is, therefore, not a pathology or an exception. Monopoly is the condition of every successful business.”
Thiel goes one step further in explaining why businesses that have a deep moat are so successful. He points out that “in perfect competition, a business is so focused on today’s margins that it can’t possibly plan for a long-term future. Only one thing can allow a business to transcend the daily brute struggle for survival: monopoly profits.”
3. Focus on Products
Thiel’s third piece of investment advice follows naturally from the importance he assigns to developing a monopoly around a niche. Investors should look not at a company’s plan or rhetoric, but rather at what it actually does or makes. It’s a company’s product that will determine whether it becomes the next Facebook or withers away.
Thiel states it this way: “I’m nervous about people who say they want to be an entrepreneur. That’s like saying I want to be rich or I want to be famous. You don’t want to be starting a business for the sake of it, but because there is a problem that cannot be solved in existing structures.”
4. Don’t Chase Past Innovations
One pitfall that Thiel sees both founders and investors fall into is trying to copy innovations that have already happened. Once progress in the market happens, founders and investors need to move on and look for the next transformative product.
“The next Bill Gates will not build an operating system,” says Thiel. Instead, investors need to look over the horizon to see what’s ahead rather than remain focused on what’s behind.
5. Fundamental Stability Matters
Thiel’s major investments spanned the dot-com bubble bursting and the 2008 financial crisis. He knows that bear markets and recessions happen and warns that the best companies are those that are prepared for them. “Companies with strong balance sheets can stand strong amid adverse conditions,” Thiel says.
He recommends that investors look for companies with excellent fundamentals and demand durability during financial downturns. He also recommends that “if a company has a history of growing dividend payout, you can consider it a quality bet.”
6. Longevity is More Important than Growth
Thiel’s companies are prime examples of what most investors would call explosive growth companies. But Thiel’s main focus as an investor isn’t growth – it’s longevity. The best companies are not those that can grow as quickly as possible, but the ones that can scale up at a sustainable pace and then generate continuous returns for years to come.
The challenge for investors, Thiel notes, is that “growth is easy to measure, but durability isn’t.” Investors need to look carefully at a company’s product-market fit over the long term, as well as its fundamentals, to identify companies that have staying power.
7. Be Serious about Investing
Another piece of advice Thiel offers investors is to take investing seriously rather than treat it as a side hobby. “One of the major mistakes one can commit as an investor,” Thiel says, “is to have a casual approach towards investing. It is important to pay attention to growing companies and invest in them.”
While not everyone can be a full-time investor, Thiel suggests that investors focus on a few high-quality companies rather than trying to invest in dozens of companies. According to Thiel, the more investors know about the companies they own, the more successful they’re likely to be.
Conclusion: Peter Thiel Investment Advice
Peter Thiel is one of the most successful venture capitalists of the internet era. While most investors don’t have the ability to invest in start-ups like Thiel, they can still benefit from his investment advice. Above all else, Thiel recommends that investors focus on durable companies with strong product-market fit and large moats from their competitors.