“Paranoia is not always a bad thing in investing. It’s what separates those who react to problems from those who profit from them.”

If you’ve been paying attention to the flow of government spending and subsidies, you’ve likely noticed a troubling pattern: investments that create unintended consequences and, sometimes, outright harm. Whether it’s over-subsidizing renewable energy without proper storage solutions, flooding the pharmaceutical market with drugs that treat symptoms but create dependencies, or fueling misallocated capital in emerging sectors like electric vehicles, government largess often leaves chaos in its wake.

But this chaos is also an opportunity. By getting paranoid—not in a conspiracy-laden sense, but by critically examining how government policies distort markets—you can uncover investment opportunities hidden in the cracks. This isn’t about fighting the tide; it’s about positioning yourself to solve the problems these policies inevitably create.

Step 1: Recognize the Harmful Patterns of Malinvestment

Governments rarely invest with efficiency or foresight. While their interventions often carry noble intentions, their execution creates ripple effects of harm. Here’s how malinvestment typically plays out:

The result? Gaps in the market, inefficiencies in industries, and new problems waiting to be solved.

Step 2: Turn Chaos into Opportunity

Here’s the golden rule: Profit by addressing what the government misses or neglects.

When governments create harm, they also create market gaps. These gaps are opportunities for savvy investors to buy, build, and grow businesses that provide solutions to the fallout.

Example Sectors to Target

1. Renewable Energy:
   Governments love subsidizing solar and wind projects but neglect recycling infrastructure and grid reliability. Invest in solar panel recyclers or software for grid optimization to stabilize decentralized energy networks.

2. Pharmaceuticals:
   Drug approvals focus on quick fixes, leaving holistic treatments or preventative care underdeveloped. Invest in telehealth platforms that integrate nutrition and lifestyle coaching alongside medication.

3. Electric Vehicles (EVs):
   Subsidies drive EV adoption but leave behind battery recycling and charging infrastructure bottlenecks. Buy into companies focusing on rare-earth material recovery or expanding fast-charging networks in underserved areas.

4. Food Systems:
   Agricultural subsidies lead to monocropping and soil degradation. Invest in regenerative farming or precision agriculture startups that rebuild soil health and increase sustainability.

Step 3: Build a “Paranoia Framework” for Investing

To succeed, you need a systematic way to identify where malinvestment is creating opportunities. Here’s how to develop your own Paranoia Framework:

1. Follow the Subsidies:

Track where governments are funneling money. Renewable energy, pharma, and EVs are big, but smaller programs like water management or cybersecurity subsidies can create overlooked niches.

2. Look for Unintended Consequences:

What problems are these investments creating? For every solar farm, there’s a need for recycling. For every subsidized drug, there’s a rise in side effects requiring specialized care.

3. Identify the Market Gaps:

Focus on industries or subsectors where the market isn’t meeting the new demands created by government largess. This is your sweet spot.

Step 4: Implement the Buy-Build-Grow Strategy

Once you’ve identified a market gap, execute the strategy:

Case Study: Capitalizing on EV Malinvestment

The Problem:
Governments are heavily subsidizing EV adoption, but this has created a supply chain bottleneck for lithium-ion batteries. Disposal and recycling of these batteries are also underdeveloped, leading to environmental hazards.

The Opportunity:
Invest in or acquire a small battery recycling company. Upgrade its recycling processes to recover more materials at lower costs. Partner with EV manufacturers to create a closed-loop system for batteries, ensuring sustainability.

Result:
Position yourself as a key player in the EV supply chain, solving a critical problem while capitalizing on growing demand.

Step 5: Profit with a Contrarian Mindset

Investing with paranoia means embracing a contrarian mindset. Instead of chasing the same trends as everyone else, you identify what others overlook: the gaps, inefficiencies, and neglected areas. It’s not about betting against the government; it’s about solving the problems their actions create.

Final Thoughts: Why Paranoia Pays

The world is messy, and government largess often makes it messier. But if you train yourself to see through the chaos and identify the gaps, you’ll find opportunities others miss. As private equity investors, we’re not just buying into companies—we’re buying into solutions.

Paranoia is your edge. It allows you to ask the tough questions others ignore and find profit where others see only problems. So get paranoid—and get rich.

Written by: The PE Guru – Gerald Moran O’Dwyer II – Blackmore Partners, Inc.