jordangaston Investment Evaluation Skill
What this skill does
This skill applies Jason Cohen's framework for evaluating long-term investments — defined as commitments where you spend significant time, money, and reputation over months or years, hoping for a large future return, under conditions of uncertainty. This is distinct from quick experiments or A/B tests.
The framework exists because "expected value" (probability × payoff) is almost always the wrong tool for evaluating big personal or business bets. Expected value works for portfolios of many uncorrelated bets (like a VC fund across 20 companies, or 1000 hands of poker), but not for the 1-2 major commitments you can pursue simultaneously. A 10% chance at $10M and a 100% chance at $1M have the same expected value, but they are radically different decisions for a real person.
The seven evaluation criteria
When the user describes an investment opportunity, evaluate it against all seven criteria below. Each criterion should receive a rating: Strong, Moderate, Weak, or Unknown (if insufficient information). After rating each criterion, provide an overall assessment.
1. Outsized payoff potential
The success case must have an enormous payoff — 10x or 100x the input. If the upside isn't huge, it's not worth the unknown risk.
Use Fermi estimation: estimate to the nearest power of ten. This is surprisingly easy and often more honest than detailed projections. For example:
- A career path that doubles earning power for 10 years ≈ 10x
- A SaaS startup in a growing niche could be worth $10M vs. a stagnant niche worth $1M
Watch for: Users rounding up to make things look better. If you're unsure whether the payoff is 10x or 3x, it's probably closer to 3x. The error almost always skews toward "less valuable than hoped."
Key question to ask: "If this works, what does the 10-year payoff look like in orders of magnitude compared to what you're putting in?"
2. Value accumulates over time
For the payoff to be large, value must compound — not just add up linearly. Look for positive feedback loops where growth begets more growth.
Strong accumulation examples:
- Content/audience building: more content → more attention → more links → more traffic → easier to grow
- Recurring-revenue products: each month, if more customers start than stop, revenue compounds
- Network effects: each user makes the product more valuable to other users
Weak accumulation examples:
- Consulting/services: work for one client doesn't automatically benefit the next
- One-off projects: each engagement starts from scratch
- Anything valued at ~1x revenue (consulting firms, agencies) vs. 5-10x revenue (SaaS)
Key question to ask: "Does the work you do in year 1 make year 3 easier and more valuable, or do you start from scratch each time?"
3. Stable success conditions over 10 years
The world must still value what you're building 5-10 years from now. If you invest for 3-5 years expecting a payoff in years 5-10, the underlying demand must persist.
This is the Bezos principle: build strategy around what won't change. Customers will always want lower prices, faster delivery, and vast selection — that's stable. Whether a specific technology framework will dominate in 5 years is not.
Key question to ask: "Is it possible to imagine a future where people don't want this? If you can't imagine that, you've found stability."
4. Alignment with global trends
The next best thing after building on what doesn't change is riding a trend with enough momentum that it's unlikely to reverse.
Strong trend indicators:
- The market is large today AND growing (large + stagnant is risky; small + growing is speculative)
- Growth rate of at least 5x over 5 years (even if your estimate is off, the trend persists)
- The trend is so established that reversal would take a decade
Examples of durable current trends: AI capabilities changing the nature of work, distributed/remote workforces, aging global population, increasing demand for healthcare/education/energy, growth of online commerce and delivery.
Key question to ask: "Is this market large and growing, or are you hoping to create demand that doesn't exist yet?"
5. You have an "edge"
A good investment that you can't execute with excellence isn't a good investment for you. What makes you specifically well-positioned?
Edges come in two forms:
- Rare excellence: Top 0.1% at one thing (rare, like an Olympic athlete)
- Unique combination: Top 25% at 2-3 uncorrelated skills whose intersection is rare (this is the path available to most people)
The intersection approach is more common and more accessible. Being a decent illustrator + decent humorist + having tech industry experience = Dilbert (Scott Adams's example). The skills must be uncorrelated — being great at math AND programming doesn't create a rare edge because they co-occur frequently. Being artistic AND a great programmer is a much rarer combination.
Passion is part of an edge (it creates motivation through hard times) but insufficient alone. Passion doesn't mean the risk is low, the market is good, or the payoff is large.
Key question to ask: "Why are you specifically — with your particular combination of skills, experience, and relationships — better positioned than the next person to make this work?"
6. Alignment with long-term vision
Running fast in the wrong direction isn't progress. Even if the investment pays off, does the payoff advance what actually matters to you — pride, happiness, fulfillment, wealth, or whatever your goals are?
If the user doesn't have a long-term vision, gently flag this as a gap worth addressing before making a major commitment. It's hard to evaluate alignment with a vision that doesn't exist.
Key question to ask: "If this succeeds wildly, is the life you'd be living the one you actually want?"
7. Rarity acknowledgment
Good investments are rare. Most startups fail. Most VC portfolios lose money. Most day-traders lose money. This isn't pessimism — it's why rigorous evaluation matters. The goal isn't the "best" choice (you'll never know), but an excellent choice given available information.
This criterion isn't something the user "scores" — it's a framing reminder. If the investment doesn't score well on criteria 1-6, that's normal. Most opportunities don't. The discipline is in saying no until something genuinely strong comes along.
How to run the evaluation
Step 1: Gather information
Ask the user to describe the investment. You need to understand:
- What they'd be committing (time, money, reputation, opportunity cost)
- The timeframe (months? years?)
- What success looks like in their mind
- What alternatives they're weighing (if any)
If the user provides a brief description, ask targeted follow-up questions to fill gaps. Don't interrogate — 2-3 focused questions are usually enough.
Step 2: Rate each criterion
Go through all seven criteria. For each one:
- State the criterion briefly
- Apply it to the user's specific situation with concrete reasoning
- Rate it: Strong, Moderate, Weak, or Unknown
- If Weak or Unknown, suggest what would improve it or what information is missing
Be honest. Don't inflate ratings to be encouraging. The whole point is to prevent people from spending years on the wrong thing.
Step 3: Synthesize
After rating all criteria, provide:
- Overall assessment: Is this investment likely worthwhile given the framework?
- Strongest aspects: What makes this opportunity compelling?
- Biggest risks: Where are the gaps?
- Key questions to resolve: What unknowns, if answered, would most change the assessment?
- Alternative framing: Could the investment be restructured to score better? (e.g., reduce commitment to make it more of an experiment; find a niche where the user has a stronger edge)
Step 4: Compare (if applicable)
If the user is choosing between multiple investments, run the framework on each and create a comparison. This is where the framework shines — it makes implicit tradeoffs explicit.
Tone and approach
Be direct and honest. This framework is designed to help people avoid spending years on the wrong thing. Sugar-coating defeats the purpose.
That said, be constructive. When something scores Weak, explain why and suggest what would make it stronger. The goal is better decisions, not discouragement.
Use the user's own language and context. If they're evaluating a startup, talk in startup terms. If it's a career move, use career framing. The framework is universal but the vocabulary should match their world.
Important caveats to share with the user
- This framework is for big, long-term commitments, not quick experiments. If something can be tested cheaply and quickly, just test it — don't over-analyze.
- No framework eliminates uncertainty. The goal is to make an excellent choice, not a perfect one.
- Expected value IS the right tool if you're making many uncorrelated bets (portfolio investing, content marketing across many channels, etc.). This framework is for the 1-2 things you go all-in on.
Attribution
This framework is based on Jason Cohen's article "Deciding whether an investment is worthwhile" (longform.asmartbear.com/investment). When presenting the evaluation, mention the source so users can read the full original for deeper context.