Past performance is no guarantee of future success 

I had listened to this show and had been very lucky with my first investment; a Danish company making windmills since 1945, Vestas Wind Systems A/S (VWS:DC, VWS.DE), which no one seemed to have much faith in anymore. I had bought the stock at a share price of around 25 euro. The radio expert believed it was a goner, but I bought it as my first stock ever and sold it 1.5 years later for a share price of 300 euro! Not a bad gain at all. 

One win can make an investor brim with confidence 

So there I was, standing on a mountain of pride, believing that I could do much better than all the experts on Earth; the king of money, top of the heap. So the next time that the expert on the radio said don’t buy, I knew I should buy. So I went back to the radio show, heard about a stock that was very low and bought a large amount of these shares. This would teach me that I was not the king of money, not even close to top of the heap, and that I couldn’t beat the experts. Basically, I ended up losing my second investment ever. The stock was worth nothing, just like the expert had said. 

Andrew’s takeaways – Avoid these errors to become a better investor 

Only listen to experts when they’re right 

The reality is that experts are hardly any better at investing than the rest of us. There are a handful that may be skilled, but these are hard to find, and you can lose a lot trying to find them. There’s nothing wrong with getting ideas from experts, but then you’ve got to do your research to support your investment thesis. But even doing that research does not assure success, which is why it’s important to write down your risk plan. What will you do if the stock goes down? At what price will you act? 

Being contrarian only works sometimes 

It’s quite a feeling of satisfaction when you bet against the crowd, and you’re right. Or when you bet against an individual and you are right. But don’t let the overconfidence of such an experience take you over, as no one is consistently right or consistently wrong. Okay, well maybe your ex-girlfriend or wife. 

Mistakes in this story 

1. Failed to do their own research 

• Relied on the assumptions of others 
• Inadequately researched type of investment 
• Ignored a professional’s advice 

2. Failed to properly assess and manage risk 

• Assumed past performance would continue 

The post Overreliance on or Ignoring the Experts Can Both Do Damage   appeared first on My Worst Investment Ever.

Dream of joining the Net champagne set ends in defeat

I lost every penny that I invested. Although it was not the end of the world, a great deal of money had gone to my Dot Com dreams. The good part was that I still had my day job to survive, but the bad part was that I had to set aside my visions of caviar, yachts, and champagne. I had to return to basics and work my butt off for a living.

If you’re not among the smartest, don’t invest in a craze 

Before you make an investment in a start-up, you must ask yourself some serious questions. Are you smarter and luckier than Joseph Tsai (Jack Ma’s legendary partner)? If not, you should not follow a fad. If you are not an expert in the target industry or business type, you will most likely be the last investor to get on any particular bandwagon. 

You know about the target company and its industry? 

Just say no to unfamiliar investments or business plans. Do not invest in a business you do not know or about which you have little knowledge. Often, your “good” friends will put some “good” investment opportunities in front of you and you will be too kind to refuse. Be tough on each investment, treating each outlay as a completely separate venture, looking at all conditions, every time, because this is your money! 

Don’t walk into a casino if you’re not willing to lose it all 

Question the suitability of the investment to your risk appetite. Ask yourself: “Can the entire investment evaporate without putting a dent in my life? Most of all, don’t act as an angel investor in a company’s early stages unless you have more than US$100 million free cash to throw away and you love to help young people to be successful. 

Be ready to endure the long haul without reward

Look at the long-time horizon and ask yourself if you can survive without any returns for a long time. Otherwise, don’t act like a private equity investor, because it can take more than five to 10 years to have sufficient returns to exit, and that’s if you’re lucky.

Andrew’s takeaways – Avoid these errors to become a better investor 

Dreams can be very expensive investments 

Throughout our lives we will be approached by people with exciting dreams of business success. My blanket advice is: DON’T INVEST. Investing in start-ups is such a high-risk endeavor; the odds are you will never see your money again. It is an extremely rare case that you get your money back. 

Diversification is key, but you probably can’t afford it 

The best way to handle this type of high-risk investment in a start-up is to diversify. If you have $10 million, put $1 million in 10 different start-ups. If you have $100 million put $1 million in 100 different start-ups. This is a suitable level of diversification when it comes to start-ups. The problem is most people don’t have this kind of money to invest. So, they shouldn’t be doing it. 

Most people just wish they were angels 

A common angel investment story is that someone makes good money in an investment and feels overconfident and decides to become an “angel” investor (Definition: A person who sprinkles money on a start-up like an angel from heaven). The angel picks out a company that they like, and they put a bit of money into it. Within months, that start-up is gasping for money and the investor will have little choice but to add more. Most people won’t walk away from the money they have already put in (and lost) and, as a result, they put more money in and eventually lose it all. You will hear a loud thump as this angel falls to earth. However, I cannot deny that there are lucky ones; if you are one of those, please disregard this paragraph. 

Mistakes in this story 

1. Failed to do their own research 

• Inadequately researched type of investment 

2. Failed to properly assess and manage risk 

• Failed to match investments with risk appetite 

3. Driven by emotion or flawed thinking trust 

• Let emotions drive their investment decisions 
• Was driven by FOMO 

6. Invested in a start-up company 

• Invested in a start-up that lacked a clear business plan 

The post One of Thousands Who Followed the Herd to Big Losses in the Dot Com Era  appeared first on My Worst Investment Ever.

Thai company set up under 49/51 foreign/Thai split

He set up a company to administer the restaurant with paid-up capital of 20 million Thai baht (611,000 US dollars), which seemed more than enough for an initial investment and working capital. Because of the Thai regulations on foreign business ownership, he paid 49% under his own name and positioned his wife, Yingluck, as a 51% Thai nominee. All correct legal processes were apparently followed.

Thai wife manages chain as hubby hits the links

The day-to-day business of the outlet was managed by Yingluck while Kobayashi played golf on most days. The restaurant became very popular and expanded into several branches, all funded by the re-investment of profits.

Business, marital divorce leave proud investor with zero

Kobayashi was now very proud of his investment and celebrated by playing even more golf. This displeased Yingluck as he was not pulling his weight with any work on behalf of the restaurants. Disappointed with Kobayashi’s laziness, Yingluck sought a divorce, aided by her lawyer, Somchai. Somchai insisted that, in line with the registered shareholdings, 51% of the business should go to Yingluck, and 49% to Kobayashi. Of course, he was unhappy as Thai law supported Yingluck.

No one helps once-happy restauranteur get any return

Now he is left wondering when and how he can sell his 49% shareholding to someone willing to buy. Since the divorce, no one has come forward to buy his shares. No dividends have been paid to him. Rather large bonuses have been paid to directors, but he is now not a director. Meanwhile, the restaurant chain has gone from strength to strength in profitability and size. It turns out Kobayashi’s investment risk, inaction, the legal framework in which he was operating, and the lack of a path to sell his shares will leave him waiting for his return on the investment forever. To rub soy sauce in his wounds, his heirs might even be levied an inheritance tax on his holdings.

Andrew’s takeaways – Avoid these errors to become a better investor

Don’t start a business that’s illegal from the start

Many countries, including Thailand where this story occurred, have limits on the foreign ownership of companies. You may find it very common for foreign investors to set up structures suggested by lawyers to overcome these laws. But no matter how safe they may feel; the reality is that most of these structures go against the intent of the law. Of course, many people operate these kinds of businesses for decades with no problem. But if things go wrong, such structures can fall apart. In this situation, the structure was legally snatched away from this golf-hungry Japanese investor.

Nobody’s going to make money for you forever

You may find yourself in a situation where you are investing with someone who is doing a great job with your money. When faced with such a situation most people stop monitoring that investment. And eventually, things go wrong. In the above story, the investor felt comfortable and confident that his business partner (his wife) would be looking out for his interests, but eventually, things turned sour.

Be careful about doing business in a country you don’t know

It may seem exciting, and the opportunity may seem great, but doing business in a foreign country can be disastrous. Without deep knowledge of the language and the culture, things could be happening around you that you don’t even understand. It doesn’t mean it’s impossible to be successful, I have had my share of success in Thailand, but it means the trust between business partners is even more critical. Trust is probably the most important thing needed to be successful in a foreign country. Make sure to surround yourself with people you trust.

It rarely makes sense to go into business with your wife

It’s not impossible, and I’ve heard of success stories, but success in business with your spouse brings a whole new level of pressures and stresses on your relationship. The emotional roller coaster of business can be amplified by the personal emotions experienced by both of you. My advice? Enjoy your time in business and enjoy separate time with your spouse.

Our CoffeeWORKS story

How we made a partnership of friends work

Against all odds my best friend Dale and myself together built CoffeeWORKS. We are proof that doing business with friends can sometimes work. Three things helped us stay together: that we were in a foreign country so we really had to rely on each other, that from the beginning we said we would put our friendship above money, and finally that we agreed to place “principles before personalities”. This last point meant that if we were in a discussion about the strategy for the company that we agreed it was not all about one of our opinions winning. We both accepted the fact that we would be better off in the long run if we were able to compromise rather than try to “win” in a discussion. Over the years, our staff has witnessed our heated debates, but they always heard us say that we place “principles before personalities”, and therefore they saw us stop and come to a final agreement each time.

Mistakes in this story

1. Failed to initially research

• Inadequately researched type of investment
• Lacked knowledge of regulations

2. Failed to properly assess and manage risk

• Failed to diversify
• Bought an illiquid investment
• Lacked influence over management

5. Failed to monitor their investment

• Abdicated responsibility for their financial future

6. Invested in a start-up company

• Invested in a start-up that lacked a clear leader
• Invested in a start-up that lacked various sources of funds
• Invested in a start-up that lacked a clear business plan
• Invested in a start-up that lacked adequate financial controls

The post Silent Restaurant Partner Finds His Voice Too Late After Too Much Golf appeared first on My Worst Investment Ever.

Don’t buy a home unless you really want to live there 

After I acquired the land, my parents lived in the area for a few months on my suggestion because I thought it would be best for them that they get a feel for the area before building the house; it ended up being a good decision because they didn’t like the area at all.  

Basic questions to ask yourself before a cent is spent  

In an ideal world, I would have let my parents experience the area before buying the land in the first place, but it was a good lesson. Nowadays, before making an important decision I ask myself two simple questions: “Is there any way to test it first before committing?” and “What would I recommend my best friend to do, if he was making the investment?” Other great questions I like to ask are: What don’t I know? What don’t I see? And what assumptions am I making that may or might not be true?  

What don’t I know? What don’t I see? 

To emphasize the importance of these questions, a friend of mine started a business that sells nitro coffee* from small mobile vans around Bangkok. He made the assumption that he would have few competitors due to the time and expense of getting started. Almost immediately after setting up his company, Starbucks started selling nitro coffee!  

—————— 

*Nitro coffee – Cold-brew coffee infused with nitrogen gas is released through a pressurized valve with tiny holes. As high pressure forces the brew past a disc, it creates a creamy, stout-like effect. 

Andrew’s takeaways – Avoid these errors to become a better investor 

Try before you buy 

Land is usually a very illiquid investment because when you want to sell it, it can be very hard to find a buyer, especially at the price you want. Therefore, it makes sense to do a considerable amount of research, but that research should be done before you buy the land, not after. 

Mistakes in this story 

1. Failed to initially research 

• Inadequately researched type of investment 
• Failed to test the investment thesis 

The post ‘Try Before You Buy’, If at All Possible appeared first on My Worst Investment Ever.

As an excited 17-year-old who had saved up a little more than US$2,000, I wanted to buy some stock. I held small amounts of two other stocks at the time, so I purchased Coca-Cola shares with the money I had saved.  

Ignorance is not bliss when missing big future interest 

I don’t know what I was thinking when I sold the Coke shares around six months later, ignorant of the importance of “buy and hold” investing and the magic of compounding interest. I lacked any education about the market and would have to learn as an adult about compound interest and “buy and hold” or “passive” investing. 

Could have made 4,000%+ with investing know-how

It was a major error to sell the shares. Using a compounding calculator, that US$2,100 would be worth US$99,880 today. As another illustration, in 2012 Coca-Cola reported that just one of its $40 shares purchased in 1919 (with dividends reinvested, meaning compound interest comes into play) would be worth US$9.8 million today. 

Ignoring compounding means broader portfolio loss 

At the time, if I had known about the power of dividends and compounding them back to reap interest, I would have amassed a decent-sized portfolio a lot sooner, which means more time over my lifetime for compound interest to work its magic.  

I recommend that all “newbies” read the top books on investing, as well as more simple sources, such as Kiplinger’s Personal Finance, and Money magazines, to educate themselves. 

Andrew’s takeaways – Avoid these errors to become a better investor 

Not investing can be as big a mistake as investing 

Probably the most valuable lesson in investing is to stay invested over a long period. Give the compounding effect time to work in your favor. Most people get this wrong. They fail to realize that the benefits of compounding start to accrue only after 20 years. Very few people see their time horizon in decades; most see it in days. 

The importance of education 

Most young people are not taught the principles of compound interest and therefore never take advantage of it. Our society would be much better off if we just invested $10,000 into a passive fund at the birth of every child. At 8% per year, this would grow to be $1,000,000 by the time they are 60 years old. Kids around the world would be millionaires upon retirement. Unfortunately, very few people have that foresight. If you don’t read this, you could end up living “in a van down by the river”. 

Mistakes in this story 

1. Failed to do their own research 

• Inadequately researched type of investment 

2. Failed to properly assess and manage risk 

• Had no exit strategy for when things went wrong 
• Failed to set a stop-loss and follow it 

3. Driven by emotion or flawed thinking 

• Failed to invest in a familiar, good idea 

The post Hard Lesson About Compounding – Could Have Been Better with Coke appeared first on My Worst Investment Ever.

Serious case of following the bitcoin herd

This trade was 100% driven by fear of missing out as the price of Bitcoin (BTC), Ethereum (ETH), and Ripple (XRP) kept surging higher. I started to feel dumb as I watched the price of BTC go from a few hundred to many thousands and then to 16,000 dollars, and I had yet to take any action.

So, I waded in. I remember the intensity; by the end of that day I had learned how to set up an account on a crypto exchange, how to deposit money in that account, and how to create and use the “wallet”. By that evening, I had sizable investments in BTC, ETH, and XRP.

Inadequate research about type of investment

Only then did I start researching about crypto-currency’s utility and encountered many articles and charts about the similarity between the crypto craze and “tulip mania” (when speculators during the 17th Century’s Dutch Golden Age traded tulip bulbs for extraordinary sums of money until, without warning in February 1637, the market for them spectacularly collapsed).

Fear over holdings leads to loss of sleep

I think you can see how lucky I was. That BTC price level I mentioned was near its record high. A couple of weeks later, that price started to tank. I began checking the prices almost every hour and had trouble sleeping. So, at the end of week four from the first day of my investment in the currency, I sold everything.

I took a loss of about 20% in BTC, but the huge gains in ETH and XRP saved me. I may be wrong many years from now, but now I can sleep again! Today, I still have some positions in these coins, but they’re so small that I think of them as lottery tickets rather than a proper investment.

Too fast, too furious and caught up in FOMO fever

To recap what I learned was not to be swept away by the fear of missing out, realize that fast decisions are often wrong decisions. I realized how lucky I was and learned from this only when a good friend of mine lost a couple of million on his XRP investment a couple of weeks after I exited. Finally, always do thorough research!

Andrew’s takeaways – Avoid these mistakes to become a better investor

Take the time to use your evolved and informed brain, rather than your base feelings

To be successful in investing means to accumulate wealth over a long period. When you are driven by fear or greed, you overlook things and don’t have time for thoughtful analysis. Slow down and invest right, take the time.

Investing without research is like jumping off a ship without knowing how to swim

Of course, if you follow what everyone else is doing, without question, you won’t even know where you’re going. You don’t have to act against the herd, but you should do your own research to understand where the herd is going and why. Through this research, you also want to understand what factors would drive you to break away from the herd.

Investing is hard. I can’t tell you the number of people who have sought my advice about investing. When I asked them how many books they had read on investing; the answer was zero. When I asked them how many academic papers they had read, the answer was zero. Or, how many courses they had taken, zero. Investing without doing research is just playing with fire; with gasoline and fire!

Plans are needed as much for exiting an investment as entering

The most important part of planning is planning for when things go wrong. When things go wrong with an investment, it usually means the price is falling. Set your plan about what you will do when that happens. It will be hard to stick to that plan, but if you have no plan, you will just be driven by emotion.

Mistakes in this story

1. Failed to do their own research

• Inadequately researched type of investment

2. Failed to properly assess and manage risk

• Failed to set a stop-loss and follow it
• Had no exit strategy for when things went wrong

3. Were driven by emotion or flawed thinking

• Let emotions drive their investment decisions
• Were driven by FOMO

Learn about the six ways you will lose your money and how to avoid them here.

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