My Worst Investment Ever Podcast

David Keller, CMT, is president and chief strategist at Sierra Alpha Research LLC, a boutique investment research firm focused on managing risk through market awareness, and author of the blog, Market Misbehavior. David calls himself a right-brained person in a left-brained industry and prides himself on his ability to bridge the gap between academic and practical finance. He is past president of the Chartered Market Technician Association, and most recently served as a subject matter expert for Behavioral Finance. David was formerly a managing director of research at Fidelity Investments in Boston as well as a technical analysis specialist for Bloomberg in New York. At Sierra Alpha, David combines the strengths of technical analysis, behavioral finance, and data visualization to identify investment opportunities for active investors and enrich relationships between advisors and clients. He uses his blog to teach readers about investing through metaphors, most frequently paralleling the process to aviation and flying. The blog platform also provides him the opportunity to make observations on market psychology. On top of this, David is a featured contributor on StockCharts.com, where he authors The Mindful Investor column, and on the See It Market platform for “smart, unbiased financial minds”.   David is also a published author; his articles have appeared in Bloomberg Markets magazine and he edited the book, Breakthroughs in Technical Analysis: New Thinking from the World’s Top Minds (Bloomberg Press). His talents took him to Waltham, Massachusetts, where he was an adjunct professor for three years at Brandeis University International Business School. David has a bachelor of science degree in psychology and a bachelor of arts degree in music from The Ohio State University.    “One of the reasons we fall into a lot of behavioral challenges or poor decision making as analysts is because you are programmed to do just that … pound the table, put your foot down and insist that you have the right answer … to be completely fair, probably almost half the time you do not have the right answer.”  David Keller    Worst investment ever  Markets begin to recover after bottom of 2009  In mid-2008, David left New York to work for Fidelity Investments in Boston and what followed was a very difficult first year on the job from a market point of view. The market topped out in late 2007 while a lot of stocks topped out in early 2007. Then 2008 started a little weaker. It then continued its sell-off into autumn on that year. The market bottomed out at the beginning of 2009. His March, April and May was very confusing and there was a great deal of volatility at the low points. Through 2010, 2011 and 2012, market start to recover consistently, with some surprises along the way. People were starting to put 2009 behind them.   David’s wrong turn begins as he goes bearish in 2013  In mid-2013, David took the completely erroneous view on the markets by turning bearish on US stocks. Of course he now knows that that was not the time to be bearish as the next few years showed strong growth across the board, especially in the US. The upshot for him leading up to it was that he was very focused on the March 2000 high, when the S&P was nearly right on the 1550 mark. And then in the beginning and then late stages of 2007, it reached almost the exact same level. So as the market had once again approached the same level, it triggered in David the beginning of his wrong call as he was expecting a repeated pattern when, he has realized since that if he had looked at all the evidence, it would probably not have supported his call.   How did that impact David professionally?   He said he learned a lot. As an analyst and as a professional researcher, he pointed out that in such jobs you need to take a stand, to have an opinion. One of the reasons we fall into a lot of behavioral challenges or poor decision making as analysts is because such professionals are programmed to do just that – pound the table, put your foot down and insist that you have the right answer. He admits thought, probably almost half the time you do not have the right answer. The markets make for a very humbling report card for your calls. So he learned very quickly that while it is important to have an opinion, it is also very important to have the humility and intellectual honesty to understand when your call is not working out and then being open and clear on what evidence has caused me to change your mind.   Road to when ‘Dr. Doom’ realized he was wrong   It was definitely a contrarian idea to be bearish at that point because stocks in general were pretty strong and the US market looked very good, riding at record highs.  He realized that he’d made his mark when the trading desk chief referred to him as “Dr. Doom” to a group of people. The driver behind his call though was not just the market being at new highs. He had looked at price momentum in different ways. One common way that technical analysts measure price momentum is with an indicator called the Relative Strength Index (RSI), which says that when something goes up, how much does it tend to go up? And when it goes down, how much does it tend to go down? It is a ratio of the average up moves versus the average down moves. And what you’re looking for is when a market moves to extremes, and that is one of the reasons why today, a lot of analysts are turning negative on the US markets. So that was another piece of evidence that told David that the market had risen a lot, and that it was probably too much, and that he believed he needed to be defensive.   Sector levels supported his bias   The third item he was looking at was sector levels. He remembered that tech stocks in particular were underperforming. This group he expected would do well in a bowl phase, and it was not doing well anymore. On the other hand, consumer staples, were doing quite well. So what he realized there and what he realized from that sector perspective (when did he know he was wrong?) was when he looked at the sectors and saw technology, weak; staples, strong; he has realized since that because those conditions supported his argument, he had succumbed to confirmation bias, and decided he was bearish. Still suffering under the spell of such bias, he then just tried to gather evidence to support that call. As the market continued a little higher, he doubled down in the worst way, and was trying to continue to back it up with only the evidence he wanted to find.   Looking at individual stocks is also insufficient   He learned too that looking at individual stocks was not a good enough indicator either and that there is great value in looking beyond the market. If you’re thinking about asset allocation, he said, it is not good enough to just look at equities, or look at global equities or emerging markets as a bundle and make an overall decision based on only on that. When you look at the country level or the sector level or the group and stock level, you start to see movements and themes that can help you understand a sort of deeper level below just an overall market call. He learned a lot about how to qualify what he is seeing from the top down and by also doing a lot of good bottom-up work. He said the bulk of the screening and detailed work he does not was derived from the lessons learned during this period.    “Having the humility and having the intellectual honesty of understanding when your call is not working out and then being open and clear on what evidence has caused me to change your mind.”  David Keller    Some lessons  Have the honesty and courage to admit that you are wrong. Then state what you need to do differently. Admit that your thesis is not working and have the courage to change your perspective.   “It’s OK to be wrong, but it’s not OK to stay wrong.”   David Keller, quoting one of his mentors  You’re not married to your call. Make informed decisions based on what you think the probabilities tell you, but you have the equal opportunity to change that when the evidence supports it.   Keep paying attention. Watch for and understand when things are changing. David takes a page out of flight training here when he learned “situational awareness”. When flying an aircraft, it is essential to have awareness of what is happening outside the aircraft, so you do not fly into a mountain, another aircraft or the ground. A big part of David’s process is having situational awareness of the markets and really understanding what he is seeing around him.   Tracking trends closely is highly valuable. Anytime the market approaches record highs or a stock goes to new highs, start to question it. When the market is strong, switch into more of a trend-following mentality and stick with things that are working, avoid things that are not working, and just look for signals that the trend has reversed.   Dig to a deeper level to gather evidence behind your call. Don’t just start with “I think the market” or “I think this position is doing XYZ, it’s going below that” and then look for evidence evidence support or contradict the position you are taking. You can look at many factors, such as the advancers/decliners, which is a measure of how many stocks are going up, how many stocks are going down. It remained strong through much of 2013, then hit a peak, but it never really came down that much. And in the end, it went up as the market continued higher. And so recognizing that the average stock was still holding up was an important signal to monitor.     Andrew’s takeaways  You will eventually be wrong.  Enjoy the moments when you are right, but you will, eventually, be wrong. It is inevitable.   Hold back on your contrarian instincts.  Sometimes momentum can push through harder and longer than you think.   Avoid confirmation bias.  The way to do that is to use David’s “second level” idea to look deeper and for views contrary to yours.  David adds here:  Another meeting he used to do in one of his companies as a group was called The Devil’s Advocate meeting, in which an appointed person had to take the other side of a thesis and argue against it. A lot of times the group would disagree with the designated contrarian but it did make everyone think about what the other side of an investment thesis was and what chain of events could cause that opposing scenario to happen. Often, he said, such a discussion uncovers weaknesses in your initial thesis that you would not have arrived at otherwise.     Actionable advice   Always have an exit plan. Here David talks again about his experience as a student pilot, as he’s working toward his private pilot’s license. One thing he has learned with any flight plan, you must always look for what you’re going to do if there is an emergency. One thing is to identify emergency landing areas, such as other airfields, highways, golf courses, so you always have these options, and if something happens you execute that side plan. IN trading, David always says if XYZ happens, then he’s wrong and needs to change it. So he always has a stopping point for a long position or a short position. He always has a price level or a movement or an event or a signal that will cause him to re-evaluate his position, no matter what. He lays out this plan in the beginning, and then the key is sticking with that and having the conviction to actually do it the moment the warning sign triggers.   Q: Now pay attention, 007. I’ve always tried to teach you two things:  First, never let them see you bleed. James Bond: And the second? Q: Always have an escape plan. Desmond Llewelyn, in his final film appearance as Q in the James Bond series (1999, The World Is Not Enough)   No. 1 goal for next the 12 months   David just launched his own research firm about a year and four months ago so he will be working on that.   At StockCharts.com, where he writes a column called The Mindful Investor, he is going to launch a TV show for this online network in the next few months.   He is also looking forward to starting a podcast of his own.    Parting words   David says it was very therapeutic to finally admit his weaknesses to everyone.     “I love what you’re doing with this podcast, it’s a pleasure to be a part of it.”  David Keller     You can also check out Andrew’s books   How to Start Building Your Wealth Investing in the Stock Market   My Worst Investment Ever   9 Valuation Mistakes and How to Avoid Them   Transform Your Business with Dr. Deming’s 14 Points    Connect with David Keller  LinkedIn  Twitter   Email  Connect with Andrew Stotz

Clayton Morris is a former Fox News anchor who left the No.1 cable news show in its timeslot, Fox & Friends, after achieving financial freedom. Through his Financial Freedom Academy, Clayton now devotes himself to helping others build passive income and achieve financial freedom like he did using methods he had to learn the hard way. After some epic failures, he’s learned how to build a meaningful life, and shares these lessons on his top-rated podcast, Investing in Real Estate with Clayton Morris.   At age 13, Clayton saw his dad unexpectedly lose his job. Ever since then he had a fear about money, and always knew there had to be a more entrepreneurial way of creating wealth. He got into purchasing performing assets to secure a future for his family so they didn’t have to go through the same financial pain as he did growing up. After spending years building up enough passive income through performing assets to quit his high-paying media career, Clayton launched the Financial Freedom Academy because he realized his passion is in helping others learn that they don’t have to just work for a pay check, and they don’t need US$1 million to achieve financial freedom.    “So what happens to a lot of people that start to make money is that they quickly find ways to squander it because money flows to those people who take care of money … and guess what? Money flows away from people that don’t take care of it, and not taking care of it doesn’t just mean making stupid investments … it also means you … think you need to hold on to it like a hoarder.”  Clayton Morris    Worst investment ever  Clayton catches property bug after flipping condos for good profit  It was 2006. Clayton was working for Fox News’ The Daily Buzz program out of Orlando, Florida, in the US when he caught the real estate bug. He had lived in and fixed up a one-bedroom condo on a golf course he had bought for US$75,000 since he moved to Florida in 2004 to work on the TV show. Then the woman in the two-bedroom condo next door died and her family were looking for a private sale as it needed renovation so he made an offer to buy it. Without any experience, he started carrying out repairs on the place every day after work. He then listed them and sold them for a handsome profit of around $80,000 just before the market crashed. He had made a fortunate investment and definitely had the bug.   Rolls money into golf community in the North Carolina mountains  He then took that money and rolled it into a speculative land project in the beautiful mountain area of Cashiers, North Carolina. The project, a Phil Mickelson golf course community that a friend of Clayton’s had found in a backroom seminar in Manhattan, required $30,000 upfront for two blocks of land on which two log cabins would be built with funds from a construction loan. The idea was that Clayton could flip the cabins and double his money. He was shown marketing materials on a website with running water sounds and visions of the proposed clubhouse and multiple phases.   Negative associations with money almost drive him to get rid of it  Some emotional negative associations with money were happening with Clayton from his upbringing that made him feel uncomfortable holding on to the profit he had already made. He said he never felt he was worthy of the money or worthy of success.   Visit to beautiful but empty mountain site briefly inspires investor  A short time later, while waiting for the cabins to be built, the market collapses, the builder withdraws from the deal, and they have to find another builder. Clayton drives to North Carolina to see his plot of land meets a promoter at their “beautiful” offices in Cashiers town that has posters with a demonstration building, the construction phases, a log cabin in a field, and lots of hot tea and coffee. They go to visit the marker where Clayton’s plot is and the clubhouse site which is also yet to be built and there is a wood sign with a picture of a clubhouse on it. Despite the lack of any progress, Clayton still could imagine how good it was going to look.   Everything falls apart as economy collapses and all stakeholders withdraw  But, just after the visit, everything started to fall apart: with a balloon payment coming soon on the construction loan, the economy collapsed. With it, the land value fell to very little, the second builder, Phil Mickelson, and the realtors all backed out, leaving Clayton apparently holding the bag. He had to go through deficiency judgment and foreclosure. One day while working at into Fox News, he went to buy coffee and because of the deficiency judgment against him, he found he could not use his debit card. He worked down the hall from Bill O’Reilly and Sean Hannity, national news figures, and went back to his office to log into his Bank of America account to find everything was flashing red. All his accounts were frozen, meaning every single note of cash he had to his name was frozen.   Long climb back to financial health  He had to work with a lawyer to seek a settlement on the construction loan of nearly $200,000 but his property was not worth $5,000. No community had been built, and some other people had been similarly abandoned and were reaching out to form a class action lawsuit. Sadly, to be party to the suit required another $10,000 to buy into it, but Clayton decided to just walk away. He eventually paid off the loan and had to put the entire painful episode behind him. He said of course he never wants to repeat it.     Some lessons  No speculation. What Clayton did was a speculative land project with the hopes of a clubhouse and waterfalls and there was nothing of substance to it. He learned from this, got creative, and nowadays only buys performing assets, in established neighborhoods, renovates them, and takes his $900 a month in cash flow. He buys assets that actually exist.   Extent of his speculation. He had may hopes based on speculation.   That this golf course community and houses were going to be completed,   That the houses would appreciate in value,   That someone would want to buy the houses,   That the economy would remain stable,   That someone would want to buy a second home on a golf course in North Carolina    Focus on one course of action. Stick with what you know. Don’t let “shiny-object syndrome” get you off track.     Andrew’s takeaways  First, a tip for listeners to go to Clayton’s podcast, Episode 453. It is what Clayton calls his Motivation Monday broadcast, where you can hear a short inspirational piece about “the color of your thoughts”. In it he presents the very powerful idea of the three stages to go through when you really want to achieve something, 1. Ask for it, 2. Receive it, and 3. Allow it to happen.   Loss is a fact of life. Even people in prominent jobs with big careers make mistakes. The feelings that come with such mishaps can sometimes be devastating, overwhelming. But don’t face such times alone. Other people have been there, other people will be there, so reach out for help and the support of friends, family and whoever you can, because you don’t have to get through failures alone.     External factors can have severe effects.  Impacts outside your control such as a collapsing economy, can cause everything to go wrong.   Beware the curse of winning. When we have some wins it can make us feel overconfident. It happens a lot with many of the stories in Andrew’s My Worst Investment Ever series. When investors first buy in to an investment and it goes up they feel confident, usually more confident that they probably should.   Worth of money. When we are craving something or thinking about it so much, that can have the opposite effect on getting it.   Size your position, always. This is mistake number two of the six common mistakes that Andrew has gleaned from the My Worst Investment Ever series: Failed to properly assess and manage risk. Investors may find a project and assess the risk as being reasonable, but the problem is that in many cases, people put all of them money into it. In real estate, his is probably a little harder compared to buying stocks in the stock market, but the point is to make sure you size your position so that you are not putting so much money into one project or one target investment. It should also be remembered that your sizing of the position is not the initial down-payment, it is the final payment that must be made when the property will transfer.    Actionable advice   Don’t be afraid to listen to your instincts. Don’t be afraid to listen to your intuition.    No. 1 goal for next the 12 months   To simplify, simplify, simplify and return to his passion, which is teaching and helping others build wealth.   “To get this message out there to help as many people as he can, to get out of the rat race, change their lives, they want to move to Thailand, they want to move to Portugal, they want to move to Spain, they want to do whatever they want in their lives, they can do it. I want to help them get there.”  Clayton Morris    Parting words   “Go out there and take action … You can spend the next two years hanging around on the internet … on internet forums … if you want to talk yourself out of anything, spend five minutes on the internet … or you can actually just get off your butt, go out and take action and become a real estate investor because I believe it’s the number one way to build wealth.”       You can also check out Andrew’s books   How to Start Building Your Wealth Investing in the Stock Market   My Worst Investment Ever   9 Valuation Mistakes and How to Avoid Them   Transform Your Business with Dr. Deming’s 14 Points Connect with Clayton Morris LinkedIn  Website  YouTube Twitter Connect with Andrew Stotz astotz.com  LinkedIn Facebook  Instagram Twitter  YouTube My Worst Investment Ever Podcast Further reading mentioned   Diane Brandon (2013) Intuition for Beginners: Easy Ways to Awaken Your Natural Abilities  Clayton and Natali Morris (2018) How To Pay Off Your Mortgage In Five Years: Slash Your Mortgage with a Proven System the Banks Don’t Want you to Know About  

Avery Konda is all about positive business, impact investing, and #SocialImpactEverywhere. He is 23 years old, a podcast host, and an impact investor in 18 start-ups; all of which have a bottom line or mandate for positive impact. Avery works as the chief community engagement officer for Tandempark, an online volunteer platform, centralized volunteer portal, and volunteer management software that helps organizations recruit, schedule and communicate with their teams, while making it easier than ever for volunteers to discover and engage in local opportunities to strengthen and enrich their communities. The Social Impactors Podcast is all about impact. Avery works to highlight impactful individuals making positive social change in their communities.   “Some of the red flags of their competitive analysis just did not make sense. Their product although it was pretty was really, really just a shell of what it could be. And so all these things were red flags that you really should look at as a private investor or just in the investment space.”  Avery Konda Worst investment ever Avery started in investing young and slow. Putting a toe in the water, so to speak. He did not go in aggressively, but low input and low-risk investments. He would make some profit and learn, but that gave him “the investor itch”, mainly not itching for more money, but he did want to learn more and he loved the idea of making money from money. It was the sporadic start of a sometimes dangerous journey.   Young investor goes through learning phase   He learned about investing a lot, losing a lot or winning big. He learned about formulas strategies, and how some things will make money, but some things do not always work. And he learned these things the hard way, making some “pretty stupid” investments based on emotion, putting money into companies that he was emotionally attached to, which you should never do in the beginning or at any time, because you should never invest on an emotional basis. It should be very much an objective decision. He was an 18- or 19-year-old man and thought he knew the world, but he didn’t. His emotionally charged investments failed, he would regain confidence and invest again sporadically, making a little money one month, and investing more the next. Not a good idea, because you should only invest about 10% of your net worth. Sometimes he would invest more than 10%, when he points out he could have “saved that or … done the smart thing and taken my girlfriend on vacation. Because the ROI on that’s a lot more attainable sometimes.”   One early foray in angel investing tainted by emotion   Eventually he got into the private investment realm. One company he can’t name was a technology company, and again, it was based somewhat on emotional attachment as well, while trying to remain objective. He started off asking the right questions:   What’s your burn rate?   How much capital have you spent already from initial investors?   Who is in the team that you have behind it?   What was the mission?   But there were a lot of red flags. The Avery would like to highlight for young investors is the idea of using intuition, not as a basis for investing, but as a protector. If your intuition tells you something isn’t right then there is usually a good reason behind that. With this company though, Avery didn’t listen and was kind of caught in the Wow factor brought on by the “incredible product” and the “incredible team” who are doing “incredible things”, and that they “couldn’t fail”. Some of the red flags of where money was being spent and their competitive analysis didn’t make sense. And their product, although it was pretty was really just a shell of what it could be. So, as a private investor, or just in the investment space, these were red flags that you really should look. So he lost the entire investment, and at his age at the time, and the amount of net worth he had, it was a big deal and a big investment.   Company loses every month, is transparent, but does it through nonsensical spending   It did not happen overnight. He had kept telling himself there could be a way for this company to do something good, that these people could be good, but it slowly fell apart. Anytime the company would do an investor update, normally monthly, but they were still losing money, and they were losing money consistently. There were no signs of turning it around. The great thing was, the founders were very open about their failings, but while the transparency was nice, their spending didn’t make sense. They were in a new market that none of the founders had been in before. So he watched it slowly fall apart.   Failed angel uses loss as a learning opportunity The good thing for Avery though was that he used it as a case study for himself. He stepped back and researched about where the company failed, learned about what they had done wrong, and he has used his takeaways as his guideline for investments since. He follows his guidelines to the T. And now, if his intuition warns him of red flags, his ears prick up very quickly.   Some lessons Investing should very much be based on objective decision making. You should never invest on an emotional basis.   Only invest about 10% of your net worth. Never more.   Listen to your intuition, not for investment advice, but for warning signs. If your intuition about an investment or company doesn’t feel right, there is usually a good reason.   The next unicorn is just around the corner. Wait for it. Avery passes on wisdom form Jason Calacanis, the angel investor from Silicon Valley, who says every seven years the next unicorn business will come along.   “If an investment feels wrong, listen to your gut, listen to the intuition you have or listen to the research that you’ve been able to compile, and if the company doesn’t make sense … don’t invest in it? Eventually, you’ll come across that company where everything just falls in place. And that might be the next unicorn business.” Avery Konda To the young investor Invest light, invest in multiple different pathways. Do simple low-risk investments such as Tax-Free Savings Account TFSAs or the equivalent in another country, or just learning about retirement funds and how to build them. Invest in the stock markets, but if you build that up, and let it sit, and you put little bit in over time, you could have a million dollars as a base for retirement. These are our building blocks and starting blocks. You can then take a small chunk of that, and learn how to invest in moderate and an aggressive portfolios. But never touch the retirement part.     Andrew’s takeaways Stay focused on getting the fundamentals down. Angel and VC investment is sexy, but it is the area of investing that is of the highest risk. It’s best to own 10 or 20 companies as an angel investor, rather than betting it all on one. When we are young, we don’t have enough money to diversify across many different companies.   Develop your own guidelines. Andrew likes Avery’s idea here. There are a lot of books out there you can read and get good guidelines, but the key thing is to build your own guidelines that fit what you believe.   There’s only one sure way to get rich in the stock market. Leave your money in there for 30–40 years. The book about Warren Buffett’s, titled The Snowball, is all about this how money accumulates through the magic of compound interest. Which is also what the book Andrew wrote for his nieces is about. How to Start Building Your Wealth Investing in the Stock Market.   Don’t make the investment mistake that a lot of people have made, and then end up wishing: “I should have started a lot earlier.”   Actionable advice   Meet with a mentor, meet with someone in the industry you’re looking at who can really guide you along the way. Andrew adds: If you’re not in an area where good mentors are accessible, read a book, and there are a lot out there for beginning investors, including his, see links below.      No. 1 goal for next the 12 months   Doing a lot of research and reading a lot more, meeting with mentors more often and getting more immersed into this world.   Parting words   Keep investing and invest when you can. Don’t wait for it.   You can also check out Andrew’s books   How to Start Building Your Wealth Investing in the Stock Market   My Worst Investment Ever   9 Valuation Mistakes and How to Avoid Them   Transform Your Business with Dr. Deming’s 14 Points Connect with Avery Konda LinkedIn Website Podcast Twitter Connect with Andrew Stotz astotz.com LinkedIn Facebook Instagram Twitter YouTube My Worst Investment Ever Podcast Further reading mentioned   Alice Schroeder (2009) The Snowball: Warren Buffett and the Business of Life  

Viola Llewellyn is the co-founder and president of Ovamba Solutions, Inc. She oversees innovation, strategic implementation, investor communications, and business development. digital undivided included her as one of only 34 black women in the US to have raised more than US$1 million for a technology company. She is a TED speaker and has been lauded as a Global Technology Pioneer by the World Economic Forum. Recently she was listed in LATTICE80’s Top 100 Women in Fintech 2019. Her family is from the Central African republic of Cameroon.  She was born and educated in the UK and lives between Africa and the US.    “Oh, this is a great idea. (At least) 1.1 billion human beings on the African continent, you guys are rushing in and are doing something that’s not charitable; it’s going to be fantastic. What could possibly go wrong?” Viola Llewellyn, quoting friends, family and supporters Worst investment ever  Idea to fill African SME funding niche between microfinance and banks   Back in 2013, Viola and her business partner Marvin Cole decided they wanted to create a business that would help African business, that is, SMEs, to get access to capital, so that they could grow. Everyone knows that small businesses need capital to sustain themselves. Africa has microfinance institutions and banks. But the whole new era of peer-to-peer, marketplace lending was just beginning, and the partners hit on the idea to be first movers in the African market to do this. Viola points out that when people start a new venture, no one thinks about failure. The partners also hadn’t seen any models that they could emulate the good and improve on the bad. All they knew was that we were going to create technology, be innovative, find business partners, raise capital, and help these businesses to grow. And they would be the heroes of the continent.   Partners revel in broad support for their finance revolution   To kick things off in 2013, they did a successful friends-and-family raising and spoke to everyone they knew all of them knew that, “Oh, this is a great idea. 1.1 billion human beings on the African continent, you guys are rushing in are doing something that’s not charitable, it’s going to be fantastic. What could possibly go wrong?” At first, not a lot went wrong at all. It was almost 2014 and there was a new association that was formed to bring all the peer-to-peer platforms together, which was what the partners thought they were. Viola points out that is not what Ovamba does today at all. It is now a marketplace maker that funds businesses that are in the trade sector. It creates and innovates technology to do all of that. So the failure she shared with Andrew was what led to the hugely successful innovation that emerged at end of her tale.   Dynamic duo draws strength from their diverse perspectives   In April 2014, Viola’s business partner (who she says is a great deal more cautious and sensible than she is) says they were going to a big association conference. She recalled her youth here and considers herself very lucky. Viola was unable to attend university because she made what she called one of worst mistakes a young woman can make: getting pregnant while not being married. At the time, her life was derailed but that upheaval put her on her own path to understanding the world from a very different perspective compared that of her business partner, who has an MBA. And because she went into sales and marketing, she loves to jump feet first into anything and figure it out later. She does not believe you need to go systematically from A to Z, as long as you can see the Z.   Marketing activities net big-fish investor at conference  So ahead of the conference, Viola started creating templates and presentations and sent them out to everyone who might be attending. She had a lot of promising responses and apparently everyone was interested to know what the partners were doing.   “A factor about the beginning of either a bubble or a new industry or a new asset class is that everyone jumps in the pool. There are sharks, piranhas, dolphins, and mermaids in the water. They’re all there. Everybody’s trying to find anything to jump onto.”  That includes the start–up community, which is how they were involved. One company was most aggressive and ended up being signed as their first institutional investor. Viola described it has the most beautiful courtship: trips to London, meetings, and all the while, other businesses were also trying to figure out deals.   Failure to ask right questions should have been first alarm  The day came when they started to negotiate the transaction and that was when the first red flag went up. The partners thought they were being clever smart by asking: “Who else has done business with you and how did it go?” And everybody said: “It went fantastically.” But Viola and her partner had failed to ask: “Who went through a cycle of misunderstandings or violations of contract and how was it resolved?” All they could see was the shining end of the journey, so they signed the contract, received an equity investment and were told that they were going to get a large amount of capital to fund all of the businesses on their platform.   All set to reel in US$12m funding for clients and nothing happens  When it was time to get the US$12 million – to fund all of the businesses that they had invested marketing and time in, while promising them and underwriting these transactions, they now had have a pipeline of close to $60-70 million that they were going to fund, all the while expecting returns that were going to skyrocket them all to success – there was silence. The expected funding seemed to evaporate. They would ask the investors: “Hey, where’s that money?” and would get the answer: “Oh, we’re trying to work some things out.” Again: “Hey, where’s that money?” Then they started to see a) individuals leaving the investment company, b) a slowdown in documentation, c) changes in the interest rates that were previously agreed upon, them, d) new clauses that we’re going to put ceilings on the outlays. Suffice to say, after all the demand they had rounded up, and there was literally no money to fund it.   Venture stranded in Africa as it is penniless and unable to keep promises to clients   They were in the middle of Africa. They had billboards up in the streets. They had done a massive amount of press and marketing, putting themselves out there as some kind of new heroes of the fourth industrial revolution. And now they were unable to give out any of the promised funds. The partners were left to scramble, explain, create new reasons, new excuses, and redo their risk parameters. It was an absolute disaster in which they missed their growth window, and instead, had to retract and almost start the company all over again. They had to terminate partnerships and relationships, consolidate situations with the clients they knew were not going to default. It really put a dent in the relationship with their group of clients.   “We’re in the middle of Africa. We’ve got billboards up in the streets. We’ve done all this press and marketing, hailing ourselves as the new heroes of the fourth industrial revolution. And now we can’t give any of that money (to the SMEs we’d promised to allocate it to).”  Personal cost includes great angst and husband’s pension fund  Personally, Viola’s stomach was in knots every night, her pride reduced to near zero. Meanwhile, her husband, who had such great faith in her future success and who had invested from his pension fund to help her build the company, now had to work extra to ensure that as a family, they were not going to end up hungry. Viola is also grateful that she and her business partner were able to maintain a good relationship throughout the crisis.   Immense challenge to face all the let-down people   But she and her business partner had to find new ways socially to deal with the people who had relied on them; hundreds of businesses, connected to as many families, many who had complained that microfinance would not work for them. They also had to face the people who had written articles hailing the venture and its leaders as “the brand new thing”. All of that came to a crashing end. They also had to negotiate a much wider narrative that says African businesses are failures, that black people cannot manage businesses. They had to go back and face everyone and explain what was going on.   Government, big-four accounting firm, gender prejudice throw up extra obstacles  Adding more strife to injury, their asset class was completely new, and the government of the country was unable to understand what they were trying to do and thus went to war with their already embattled business. They also had to go toe-to-toe with a big-four accounting firm in the quest that their start-up venture be given the chance consolidate and stabilize. It was frightening, embarrassing and shameful. And as a woman, some of those parties would also say to Viola: “You’ve got no business being in business here.” She had to fight all of those battles and rescue her pride at the same time. But that was 2015 to 2016. It is 2019 now and Viola reminds listeners of her bio. So she and her business partner went through that valley, which slowed them down considerably, but the light was: “But the great thing out of that is it taught us how to grow organically, with very little support." “The great thing out of that is it taught us how to grow organically, with very little support.” Viola Llewellyn Some lessons The strength of a future engagement relationship, or even investment, is based on how well you can recover when things go wrong. Never put all your eggs in one basket. When it comes to investment, you have to diversify. That means also that for start–up founders, the first capital raised should be the beginning of the next capital that raised. Viola has come to realize It is very difficult to raise money when you need it. The easiest money to raise is the funds that you don’t need. This Viola says is the bizarre, but very real, paradox in the business of start-ups. “People throw money at people who have money, this is insane.” Viola Llewellyn   Therefore, as an action item, never stop raising capital. It is far better to have the offer of funds and be in a position to say “No” than to be looking around and be unable to find funding, because the desperation makes the seeker a higher risk. When you do equity, and if there is debt that is attached to that, the two should be close together. But if the debt on the contractual basis fails, the equity comes back to you. Sometimes the next back–up plan should be the incremental release of either the pipeline, the opportunity, or the drawdown capital. One cannot throw the entire thing up and say: “This is it. This is the whole lot.” There has to be a process. So that if there is, if you have to cut a piece off, the rest of it is still in place, and you can come through and fund your market. When you’re a start–up, be aware you can be taken over by passion and the dream. And Viola has said the following in every talk she’s given: “No business plan survives contact with the enemy. And the enemy is reality and the marketplace.” Viola says that everything you thought of in your business plan; none of it is true. Investors asking start–ups for their business plan is hilarious. She wonders how a start-up is supposed to know any kind of reality and put it in their business plan, especially when they are the first to market. There are other parameters people should be considering, “and it ‘aint your business plan.” Andrew’s takeaways Don’t compare your insides with other people’s outsides. Andrew likes this piece of wisdom that wise friend told him a while back because it helped him realize that everyone is in some way drowning in their own cesspool of thoughts and striving to respond to all the difficulties that beset people and everything that’s going on, and that at times, like Viola: “Life is not easy for anyone.” Beware The E-myth. When someone is involved in a start-up business, they succumb to a nearly delusional state that Michael Gerber calls “the entrepreneurial seizure”. All they feel is the passion, the energy, the excitement, and that nothing is ever going to go wrong with their enterprise. Andrew suggests we have to be very careful about that, because it can blind us. We don’t even look at the possibility of the many things that can go wrong in a new business. With trust in your partner/s, it is possible to get through horrendous business crises. While Andrew was listening, he was sure that Viola and her business partner would fall out over the situation, because it was so painful and difficult. Whenever raising money Never expect that the people you are raising money from have the same objectives as you. Their objectives are different. Don’t ever expect that they’re going to feel the way you do. Once you understand their thinking about things, it will help you. You really don’t know anything about the company or bank that may invest in you. The amount of politics and other matters that happen at a company, or with the people that you’re raising money from, is essentially a mystery. Money can be withdrawn from situations not because the company/people don’t want to invest, it can be just down to some other situation that is occurring within the fund-source company. Whenever you’re doing business with anybody, don’t be afraid to go way beyond what is being given to you as far as recommendations. You never know what you will find out so get recommendations from fans of a company and enemies; check, follow up and try to understand anyone you are about to do business with. Actionable advice Strive for a level of authenticity in yourself that you can call upon when things go wrong. People can tolerate a bad outcome and forgive you and support you if they see that you have a clear understanding of what is going on. Even if you don’t have a game plan, if those affected can see that you sincerely wish to fix the problem and make sure that other people’s interests are protected, all will be well. The way to do that is to build trust with customers and all stakeholders and maintain transparency throughout any crisis. Be upfront about what is facing everyone. “That’s what saved us at the end of the day.” Viola Llewellyn   No. 1 goal for next the 12 months To raise capital from good partners and be out in front, leading that process versus having the terms dictated to her and her business partner. Parting words “The worst thing that will ever happen to you in life is that you will die and we’re all going to die. But before that happens, you better learn to embrace failure because you are only as good as the last thing you recovered from and you get to champion and cheer yourself on. From success to success from loss to recovery. And I love this journey. And I think what you’re doing Andrew is absolutely groovy. This is one of the best podcasts I’ve ever been on.” Viola Llewellyn   You can also check out Andrew’s books How to Start Building Your Wealth Investing in the Stock Market My Worst Investment Ever 9 Valuation Mistakes and How to Avoid Them Transform Your Business with Dr.Deming’s 14 Points  Connect with Viola Llewellyn LinkedIn Twitter Website Instagram Facebook YouTube Connect with Andrew Stotz astotz.com  LinkedIn...

Gaurav Sharma holds a post-graduate degree in management from Birla Institute of Management Technology (Bimtech), in Uttar Pradesh, India, and a bachelor of science degree from the University of Rajasthan. He has had a rewarding five years of experience at various multinational companies in the domains of wealth management, investment analysis and portfolio reporting. He is presently working towards democratization and simplification of the wealth management services by leveraging machine learning, AI and data science. Gaurav aims to solve problems across customer segments comprising the masses, the affluent middle class and high-net-worth individuals (HNIs). During his tenure at Moody’s Analytics, he gained practical exposure to global standards of investment research and reporting through various tool such as Bloomberg, Morningstar, FactSet and other proprietary tools. At Mercer, he gained exposure to asset allocation, financial and retirement planning, and investment consulting. Prior to these, Gaurav worked in the global wealth and investment management business-line of Bank of America-Merrill Lynch and supported ultra-HNIs in managing their wealth.    “If the company’s growth plans are there, it will work.But if the management is not able to understand and … make investors’lives easy by telling them everything, if they try to hide and try to play with the accounting standards, and of course, if they try to siphon off money,at the end of the day, investors will get to know.” Gaurav Sharma   Worst investment ever  Young blood catches bug for stock investing  Gaurav was very young when he became interested in the stock market and was one of those guys who “jumped right into it”. He borrowed some money from a friend’s father, who was kind enough to believe in his investment philosophy. Due to his youthful enthusiasm, he was trying to make it big very soon in the market.   First foray rides educational technology wave in India  So, he decided to invest in education technology company, Educomp Solutions (Educomp, EDSO.NS). He did some balance sheet analysis and most of the basic research, and invested in the stock around its peak in 2008-2009. The company appeared to be at the forefront of the education-plus-technology mix, and for India, with hundreds of thousands of public, private, international and specialty schools all looking to drag their classrooms away from chalk boards, it seemed a no-lose situation. He bet really big on it, the numbers looked good, and every one or two years, there was very good news about Educomp winning contracts with 15 to 20 schools. Add to that the promotion of the K-12 education system, and government policy wanting to put a tablet into every student’s hands, everything was going great.  Hidden mismanagement leads to company’s downfall Gaurav says that if the company’s growth plans are there, it will work. But in Educomp’s case, the founder and CEO of the company had other plans with regards to managing. He was not doing the right thing with regards to the proper management of the company’s money, and was siphoning some off to other transactions, investing in other asset classes by taking money out of the company books, and was basically fudging of the books. The Gaurav had done extensive research on the company’s numbers, its balance sheets, growth plans, and growth in the sector; it all looked good. But as for the management quality, he was unable to assess that very well.   Investor loses 90% of borrowed funds as stock plunges   That’s what made his life difficult, because when the shares started falling, due to the management quality, he sought to assess the business, but he could not trust the management. The stock took a beating and it ended up a 90% loss of the whole money he put in. He then exited, and the only profit was considerable lessons learned.      Some lessons Read between the lines when it comes to management. A company can have excellent prospects, great products or provide great services, have good numbers, great balance sheets, fine growth outlook, but all of that can come to zero if the management is poor. If the C-suite is lacks ability and is not smart enough to understand different root causes that can emerge to disrupt its business, it will fail and hurt investors very badly.  Sometimes it’s very difficult to prepare for corrupt management. If the founder/CEO had not misspent company funds, siphoned money off for bad transactions and family members, the company would have been in a much better state.   Numbers tell a story but they do not tell the whole story. Investors need to check the background of management, and this kind of analysis must be done on the quality of the management team, their consistency as well, because balance sheets can be fudged. Such misreporting can go on for a long time before investors get any hint of it happening. There must be checks and balances also on management, through vehicles such as active board members and shareholder activists demanding details.   Spend 70% to 80% of your time with numbers when looking at a company. The rest of your time should go into understanding the quality of the management team and the consistency of their reporting. You can even look into what the performance of members of that team at their previous companies to get a better idea of how they are or will perform in your target firm.     Andrew’s takeaways  Bad times are the best time to talk   The most important time to communicate is when we have bad news, when we’re having bad time. At such times, most people avoid communication, and most companies avoid communications at such a time.  Investors and fund managers do not expect a company to be perfect. Therefore, getting out there and saying, “This is bad”, “This is wrong”, “This is not working for us” or the like is not as bad as it feels. People are going to accept that.   Overconfidence happens to us all. It’s human. We all suffer it at times when we focus only on what we are looking at. When we do that, we build confidence through that work. And sometimes that amounts to a very false confidence.   Experience comes with age. It would be nice if people could start investing at a young age and not make any mistakes. But the truth is that sometimes we just have to make these mistakes.   Actionable advice   Read between the lines in the annual report. There are a lot of things that are actually said that are not actually written and you need to understand and act upon them, and act wisely.    No. 1 goal for next the 12 months   I want to learn more … I believe the next year will be giving me a lot of more maturity about choosing my investments in a smarter way, I’ll be able to understand more about management. As I meet more people every day, I’m trying to judge and understand what exactly goes on in their minds as they run their companies.     Parting words   Fail fast, fail early, learn fast and recover fast.     You can also check out Andrew’s books How to Start Building Your Wealth Investing in the Stock Market My Worst Investment Ever 9 Valuation Mistakes and How to Avoid Them Transform Your Business with Dr.Deming’s 14 Points  Connect with Gaurav Sharma LinkedIn Connect with Andrew Stotz astotz.com  LinkedIn Facebook  Instagram Twitter  YouTube My Worst Investment Ever Podcast 

Nate Abercrombie lived in Syria for two years trying to learn Arabic before attending graduate school. He had hoped the language skills would help him secure a job in the oil and gas industry. Ironically, he ended up working in the renewable energy industry as a financial analyst. He loved having the opportunity to analyze and research large capital projects, but financial analysis in the wind energy business can become very repetitive. He needed a new challenge and equity research was something that he really wanted to do. Nate got a shot at Janus Capital Group (now Janus Henderson Group). It was a phenomenal learning experience and he got to know some great investors. However, Nate ultimately came to realize that the corporate objectives were misaligned with fund-holder returns, so he started thinking about next steps for himself. Something he did really enjoy about the equity research process was meeting management teams. Considering that the average investor never has the chance to listen to management, Nate decided to start the podcast, Investing with the Buyside, which has now become The Stock Podcast, which is described as: “The only investing podcast that gives everyone the chance to hear fireside chats with public company CEOs and CFOs regarding their business, industry, and financial outlook.”   “In autumn 2018, the company decided it would cut its distribution (dividend payout) by 67% … the stock went down something like 45%. So when I bought in, it was probably at around US$10/share, and it declined to about $5/share. But then over the next few days it just kept going down.” Nate Abercrombie   Worst investment ever  And still in progress  Nate said he has made a couple of bad investment missteps, but the one he spoke of was one that remains in play as he still owns some of the shares in the company he talked about. As an energy industry financial analyst, he covered the midstream space (“Midstream” is a term used to describe one of the three stages of oil-and-gas industry operations, and delineate the processing, storing, transport, and marketing of oil, natural gas and natural gas liquids). One of the things he did as an investor was that he could invest outside of the portfolios he was managing, but also invest in some of the stocks that he was not covering, but were within his sector.   Experienced oil and gas analyst makes a play at a midstream outfit  He was a big investor in exchange traded funds (ETFs), because it was very difficult to trade in and out of individual equities back then. Also, he had been cleared to invest in a couple of midstream stocks on an individual basis, and one in particular was Sanchez Midstream (SNMP:US, SNMP.K), a subsidiary of Sanchez Energy (SN.US), an oil and gas exploration and production company in the United States. These companies pay a lot of their profits out to investors, but in this industry, rather than call them “dividends”, they call them “distributions”. The distributions that they were paying out at the time were very attractive, some in the double digits, and Sanchez Midstream was no exception.   Idea was to use dividends as income while getting podcast off the ground  Nate had been exploring what was going to come next for his livelihood. He was thinking about starting his own podcast and that he was going to need extra income. Sanchez Midstream was paying out a 20% distribution yield, it had a very solid balance sheet, and it had growth. The important indicator for a midstream company, Nate pointed out, is to see volume growth in its system. And that was there too. Despite the contemporary commodity price collapse, there were some quarters during which volume growth had slid a little. But by the same token, its distribution looked extremely stable, because most importantly, the distribution was covered more than one time. Rather than call them payout ratios, this sector does the inverse, and calls it the coverage ratio. So as long as coverage is north of 1x, one times, that means that they haven’t enough cash flow to pay that distribution out.   Senior management talk up the company nicely on Nate’s podcast Things were looking good. Nate even had a member of the Sanchez Midstream management team on his podcast to talk about just how the outlook was positive and how things were going well. This was a stock he had bought thinking that it was going to provide him an income, just given the fact that he was moving to a new career and that his outlook was not very bright from a revenue standpoint. So he bought and owned the stock, and had management on his podcast to just talk about the business, and how well the company was doing.   Management announces 67% cut in dividend payout, stock plummets  Then, in the autumn of 2018, the company decided it would cut the distribution 67%. When that happens, the stock usually goes down a lot. That day, Nate recalled the stock went down something like 45%. So when I bought it was probably around $10 a share, but after the announcement, it declined to about $5 a share. But then over the next few days it just kept going down. The parent company, Sanchez Energy, was also going through its own financial difficulties. They’re currently going through some sort of strategic decision-making process to decide on the best next steps for the company. Nate as an outsider, has no accurate insight into what will happen with Sanchez Energy, but there’s a good chance that it is going to either restructure its debt or be bought out or bondholders will end up owning the company. And from Nate’s perspective, as an investor in the midstream company, his thought process is always that the midstream company will probably come out of this period doing alright.   Despite $10 to 2$ a share slide, Nate still has hope amid good recent coverage ratio  So the stock is now at around $2 a share, the company pays a 60-cent annualized dividend, which amounts to a 30% yield. The coverage last quarter was at around 1.4x. Therefore, Nate still has some hope, but he described it as a very painful learning experience for an investor. Some lessons   Listen carefully to what management says, and what they don’t say. This discipline is part art and part science. Investors need to learn to sense and arrive at a solid opinion as to whether or not management is being completely forthright, truthful, genuine, and honest.  “There were probably some … red flags that cropped up that I may not have paid enough … attention to … (this would include) the fact that they (management) didn’t really want to talk about the distribution (dividend) all that much.”  Nate Abercrombie    Andrew’s takeaways  Ensure you’re as diversified as you can be. That means not relying too much on any one company. Andrew suggests to Nate that if he wanted to get income from a midstream company, maybe it would have been a better idea to own shares in five or 10 of them. Diversification teaches us to forgo the really high return from perhaps one of the companies in exchange for reducing the risk when one or two companies go bad. Sadly, if all midstream companies suffer, diversification by adding just other midstream companies to your holdings may fail to protect you.   Management almost never tells you the risks. They are however always excited about their story and it’s very hard to get information about risk. We also have to remember that management can’t tell you the risks. If a risk is very real, ethically and legally speaking management must announce that to the overall market, not just analysts or investors. So Andrew likes to think that as we invest, the very reason we like to invest with a company is because management are so optimistic and positive, and they are creating this business. But that warmth and trust in management can also be the seeds of destruction.  Meetings with management do not add much value. Andrew says this after observing about 1,000 meetings between fund managers and analysts. This is because the fund manager could have gotten almost all the information in the meeting from the company’s website.   Many fund managers confuse understanding a business with getting an advantage from investing in the business. Sometimes understanding the business more deeply can actually be misleading, because you start to build confidence that you really know the management, the company and its goods and services. This can sometimes blind you.  Actionable advice Nate  Find a really good management team. If it’s a really risky investment, the better the management team, the better the outcome for your investment.  Andrew’s take on that  Invest with good management teams. Because things will go wrong, and good management teams will work through it and keep your interests at heart. No. 1 goal for next the 12 months Nate is trying to figure out what he will to do with his podcast. It’s harder than he ever thought to grow a podcasting business, but he has some ambitions of becoming a fund manager, and he would love to manage money again. His goal therefore right now is to get back into the investment management business, where he can help fund holders, shareholders or investors make a lot of money, and also grow the podcast.    “If I can do both (fund management and podcasting), that’d be perfect.”      Parting words   “I think that talking about (one’s) losers (worst investments) is maybe one of the most helpful ways of learning lessons in the investing world.”    You can also check out Andrew’s books How to Start Building Your Wealth Investing in the Stock Market My Worst Investment Ever 9 Valuation Mistakes and How to Avoid Them Transform Your Business with Dr.Deming’s 14 Points  Connect with Nate Abercrombie LinkedIn Twitter Website  Facebook Email  Connect with Andrew Stotz astotz.com  LinkedIn Facebook  Instagram Twitter  YouTube My Worst Investment Ever Podcast   

Reed Goossens moved to the United States in 2012 to pursue a career in structural engineering, however he then discovered a passion for real-estate investing. With limited funds and no credit, Reed went from purchasing a small duplex to growing his own real estate investing firm, RSN Property Group. Reed now syndicates large multimillion-dollar deals across the US and certainly lives up to the “never-say-die” Aussie attitude when it comes to being a successful entrepreneur. Reed is also the host of the up-and-coming podcast, Investing in the US: An Aussie’s Guide to US Real Estate (and has recently published a book of the same title), wherein he invites other distinguished real estate investors and entrepreneurs to speak with him about their success and help guide other international investors who want to successfully invest in the US.   “The ARV (After Repair Value) was not large enough to justify how much money we ended up spending to add this third story.”   Reed Goossens    Worst investment ever ‘Networking on steroids’ typifies Aussie engineer’s view of first real estate event in US Reed moved the United States in early 2012 and was without a job, so he took the brave move of walking the streets of New York City to visit every engineering firm he could find, with his portfolio in hand and saying, “Hey, give me a job!” He quotes Tony Robbins, who says: “One ‘yes’ will change your life”. And it did. He looked at medium-sized firms, and admiring his spirit, one actually did employ him. Within two weeks of moving to the US, he was at his first real estate networking event, and he realized the Americans were on a different level than he was coming from Australia. He called the US experience “networking on steroids”. Learning about US property Realizing he had much to learn in his new home country, he spent the next six months doing just that. He realized quickly however how low the barriers to entry to the property market are in the US compared to those in in Australia, in that he could go out and buy a property for US$38,000. He was amazed, stating that you could never buy in Australia for under around $250,000-$300,000. He visited upstate New York and bought a number of properties but quickly ran out of his own money and banks were shy about lending to this new arrival. So he found a partner, and with him, started looking at properties in Philadelphia, as he wanted to try his hand at flipping houses. He was confident he could do so as a chartered structural engineer who had worked on many ground-up developments, including the London 2012 Olympic Games site. Reed finds a partner and they buy a row house in Philadelphia to flip So, he and his business partner bought an early 1900s two-story row house in Philadelphia for $110,000. Their goal was to add a story to match adjacent houses and make this row house similar to others in the city and those in New York, and thereby add value to the property. Reed did all the structural engineering drawings and they hired a general contractor (GC). Contractor’s thievery and other horrors make for a lengthy and costly project And here Reed explains the two main problems with the investment. The story he said is a very good lesson in After Repair Value (ARV) and underestimating the cost of carrying out the renovations. In the end, the ARV was not large enough to justify the amount of funds they ended up spending to add the third story. Combine that with shoddy GC work – the general contractor stole materials from them and Reed had to take over the GC work himself and handle all the subcontractors. There were other problems on the mechanical, planning and electrical sides, as the original GC had cut corners and sealed walls before the city had inspected plumbing and electrical wiring. They even found some of their stolen materials at project site a few streets from the house, as they had been networking and were invited onto another developer’s project site. Extra pressure hovers nearby as investor’s father is also involved The situation was also riding on some emotional issues. Reed’s father was also invested in their project and it was Reed’s first foray into syndication. They all thought the build was only going to take around six or seven months, but it ended up taking about a year. And they were holding it the more spending was happening on the debt, the soft costs, and just really having to try to get it out of a hole. One of the subcontractors also ended up being jailed over a bar fight. So, suffice to say, a lot went wrong. At the same time, Reed was trying to move to Los Angeles to be with his girlfriend, who was from there, and his business partner stayed to finish the job. Heart of the loss was how much the home would be worth after repairs The summary though was this and Reed points out the heart of the problem was in the ARV. They bought the house for $110,000, spent about $220,000 or $230,000 on it and sold it for only $375,000. Reed did take care of his father, and kept the promiser of a 15% gain on his investment. Personally, Reed took a loss of about $40,000, or he calls it a $40,000 lesson. He opines that if the ARV was going to be worth $500,000, they would have been very happy. Quick sale but investor takes $40k hit In the end, the house sold within 30 days, which showed there were no issues with what they produced but it just took six months too long. From the time they started looking at the property to the time that they exited and got paid, it was a full 18 months. Some lessons Never overestimate your After Repair Value. On paper everything can look great, but excessive time taken in undertaking renovations can eat into the ARV. Do a lot of research on all possible hidden costs. These can take the form of regulatory issues, materials, builder errors, and contractor overruns. Ensure you work with the right people. Obviously, try not to work with thieves, but build a great team around you, a team you can trust. Never underestimate the value of time and timing the market. Andrew’s takeaways Opportunity cost can have a massive impact. Reed was drawn into a project that became much deeper and expensive in time than he had expected. He could have been working on another deal or bringing in revenue from some other sources. It’s very hard to estimate what can go wrong. But that is part of risk management. And then Andrew discusses My Worst Investment Ever’s six common mistakes, particularly in reference to No. 2, failed to properly assess and manage risk. But also Andrew argued that sometimes we can do all we can and things can still go wrong. Collated from Andrew’s My Worst Investment Ever series, the six main categories of mistakes made by interviewees, starting from the most common, are:    Failed to do their own research   Failed to properly assess and manage risk   Were driven by emotion or flawed thinking   Misplaced trust   Failed to monitor their investment   Invested in a start-up company  Anomalies can scare us. They can also be misleading and some people get scared out of investing completely. But don’t build your career and investments around these anomalies. These will often happen and there’s not much we can plan to avoid them. Actionable advice Partner with the right people. Your team is everything. Making sure you have the right team around you, who have done it before, can go a long way toward avoiding such risks. No. 1 goal for next the 12 months In terms of investing, Reed would like to close on another 1,000 units in the United States. On the personal side, he would like to travel more and spend a lot more time on business development, podcasting, book launches, which is the type of activities he is growing to love. Parting words “A fool and their money are easily parted. So don’t be that fool.” What that really means to Reed is he recommends getting out there be educated, learn from other people’s mistakes, but at some point in your life, you’re going to have to take action. Invest in yourself first and foremost, and get yourself knowledgeable about whatever investment strategy you’re going into, whether it be stocks, bonds, mutual funds, investments, real estate investments, and be knowledgeable before you pull that trigger. You can also check out Andrew’s books How to Start Building Your Wealth Investing in the Stock Market My Worst Investment Ever 9 Valuation Mistakes and How to Avoid Them Transform Your Business with Dr.Deming’s 14 Points  Connect with Reed Goossens LinkedIn Website (business) Website (personal) Blog Twitter Facebook Pinterest YouTube Email Phone: +13235191111 Connect with Andrew Stotz astotz.com  LinkedIn Facebook  Instagram Twitter  YouTube My Worst Investment Ever Podcast  Further reading mentioned Reed Goossens (2018) Investing in the US: The Ultimate Guide to US Real Estate

Paulo Lydijusse Caputo is pursuing an MBA at McGill University (Canada) with a concentration in global leadership and strategy. After graduating with a bachelor of economics from Faculdades de Campinas in Brazil, Paulo worked for five years at Cyrela Brazil Realty, the largest real estate company in South America, acting as a regional controller in his last role. Paulo then spent a summer launching Uber’s operations in Belo Horizonte (sixth largest city in Brazil) before co-founding Baanko, a social enterprise with the objective of supporting and scaling social-impact businesses in Brazil. At Baanko, Paulo developed an in-house business methodology framed around and aligned with the United Nation’s Sustainable Development Goals (SDGs). Paulo is interested in pursuing careers in scalable technologies and impactful industries, with particular focus on AI and entertainment. His personal interests include tennis, outdoor activities, coffee-brewing methods and barbecuing. He is the executive president of McGill’s Desautels Faculty of Management  One World One Culture Club and was recently awarded with the Mandri-Muggenburg Family MBA Leadership Award.    “I really believe in giving back and this is something that I learned since the beginning of my career. For me, this is part of it so call on me for whatever you need and whenever you need it.” Paulo Caputo   Worst investment ever Property insider buys discounted home from his employer real estate firm Around seven years ago Paulo experienced what he called a “real fail”, meaning in terms of investing, it was not a case in which he could find a way through to recover or minimize his losses. This one was “critical”. While he was working for Cyrela, the largest real estate operator in South America offered staff the opportunity to invest in one of its apartments, under apparently favorable conditions. Cyrela offered to waive all commercial, marketing and transactional fees, which meant a discount on the apartment’s face value of around 17-20% off the face value of each apartment. In Brazil, to buy a residential property, during the construction period, you only need to pay 30% of the price, then you hand over the remaining 70% after the vendor hands over the key. So lenders give you credit and you pay off the mortgage to them. His focus on all the shiny parts of the deal blinded him to the bigger picture Paulo liked the idea because he felt he was an industry insider who knew exactly what to do. Also, the apartment was conveniently located, so he felt confident about finding potential buyers. His idea was to sell the unit during its construction period, thereby being both an early investor and an early seller. He also felt confident he was investing in something that was valuable at the time and that it would generate a great return. Somewhat focusing on all the good points and so touched by a fair measure confirmation bias, he was expecting to easily find someone to buy , that he would know exactly the right time to exit the unit, and that he would the right price he wanted for it. But things did not pan out that way. Adding to his early excitement was that he was investing in a product that was part of his life, because he was working for the company that was building and selling it. He admitted that social validation was also component of the decision. He really believed in an operation that he was working for and that nothing could go wrong. Reality bites as government crisis darkens market But the political economy of South America, particularly Brazil’s, is always a roller coaster of volatility and Paulo got hit in one of its swings downward, the first episode of declining fortune for the previous government. He explained that investments in real estate involve a very high-end product. So it is high on the chain of products people can buy in their lives. A home is not something you buy every day and it is an item highly vulnerable to outside events, political, economic, and social. Apartments are the last thing Brazilians want to buy at this time So, Paulo tried to sell his apartment several times, involving the entire Cyrela sales force, all of whom he knew and were friends with. But, liquidity in the housing market was frozen. It was not a problem of the product or a problem of the price. It was just that people were averse to taking on a new home. He said when there is such a blip in the political and economic cycle, most people are not going to take on such risk. So buyers wait for the recovery, and in real estate, at least in Brazil, property is a product that is first to be hit, and the last one to recover. So before any buyers are ready again, everything needs to be back on track before you can start to resell apartments or other high-end products. So either you are ready to be comfortable for the long period that you are exposed or you have to cash out completely. Investor forced to sell property back to his employer at a loss Paulo eventually sold the apartment back to Cyrela at a big loss because he was unable to find another buyer. So of the saving he was offered at the beginning, he paid around twice or triple that amount when he exited the investment. Some lessons Operating a business and investing in a business are completely different. Paolo really thought that because he was inside a real estate company, had worked in many areas of it, and that he really knew the business, that he would be investor in that business. The signals the market sends are vastly dissimilar from the signs you can read from the inside of a business structure. As a buyer, one can only see a narrow part of the entire picture. Dig deeper if your bias and marketing departments are telling something is good. Investors can really be influenced by explicit and implicit influences. They are always being hit with different messages sent by the market of the people promoting an investment. In Paulo’s case, Cyrela invested a lot in promotions to employees, emphasizing how the discount would make buying one of their apartments a good investment, as were his peers and bosses, who were always sending positive signs that fueled his own confirmation bias – what he was expecting to hear. It is very difficult at such times to see any red flags about possible negative impacts. Talk with people who do not stand to benefit from your potential loss. Talk to people outside the deal, who never bought an apartment, never heard about a stock that you are you trying to buy or sell, and try to explain the business to them. Their probably very good questions will make you think more deeply about what you’re getting involved in. “I’m not saying don’t invest, but just saying try a different path.”   Paulo Caputo    Be aware and look for details about potential harmful impacts or events. Paulo never considered that the economic or political context would be so tough on the investment he was making. Not only that, he neither entered his mind nor his decision-making process. Sometimes such impacts can be related to the federal government, sometimes even local government, can have enormous impact on the performance of any impact.   “I think more and more that failure is a part of any success … now I can see from a completely different spectrum.” Paulo Caputo   Andrew’s takeaways Make sure you understand the characteristics of the sector that you’re investing in. Something very important to remember is whether the sector you’re investing in is a consumer staple or a consumer discretionary item, in terms of sector classification. The whole point of the discretionary sector is that it comprises products that are not used or needed every day, and therefore consumers can delay buying them. These are items such as a car, a house, a condo, even a TV. The difference between discretionary and staple items, such as coffee, or food, is that the latter are those that people keep buying even when there is a recession, although they may go down a bit. But when the economy has a hard time, it is discretionary items that really get hurt. Always be aware of external factors. Investors often forget about external factors. Everything was right about Paulo’s investment. He was working for the company, he had good information, it was a good product, he believed in it, other people around him were making money on it. If things didn’t go sour in the economy or the political situation, Paulo would probably have made a good return. But when external factors hit, they can have a massive impact on your investment and can even wipe you out, especially because they are so often events that you cannot possibly predict will happen. Collated from Andrew’s My Worst Investment Ever series, the six main categories of mistakes made by interviewees, starting from the most common, are: Failed to do their own research Failed to properly assess and manage risk Were driven by emotion or flawed thinking Misplaced trust Failed to monitor their investment Invested in a start-up company So how do you deal with external factors? Manage your risk and diversify. Andrew suggests to Paulo that the common mistake he was talking about was No. 2: Failed to properly assess and manage risk. Paulo probably assessed the risk quite well but as far as managing the risk, that is a different activity. Paulo may have liked this particular investment, but the problem that most people have is that they put a lot of their money into a particular investment. So, they’re not managing the risk of their overall portfolio. If this was 5% or 10% of the money that Paulo were investing, then he probably could have found a way to work around it and stay with it for a longer time, or he could have just cut his losses without much damage. But particularly when we’re young, it’s hard to diversify, because we don’t have the capital to do that. Don’t be driven by emotion or flawed thinking. Paulo was surrounded by people that were confirming his investment. Being surrounded however is a little different to common confirmation bias, which is that people go out looking around the internet or around brokers or other people to try to find people who agree with their idea. But here Paulo was surrounded by people who agreed, and some of them had made money over the years doing this type of thing. So it was not a case perhaps of them being misleading, there was just no one talking about how it could all go wrong. Actionable advice Surround yourself with people that can challenge your thoughts and your assumptions, and you can learn from them every time. Talk with people that you trust and that can provide you with good feedback about your reasoning and can challenge your assumptions. No. 1 goal for next the 12 months After his first MBA year at McGill, Paulo wants to do an exchange stint in China. McGill has many partnerships with universities in China and he is fascinated by Asia. His main focus is to keep striving for better understanding of AI to be well positioned for the future. Parting words Despite any failure, don’t stop, be resilient, know what you want and strive for it. “There is no path with only success and winning …(Losing) is part of the game. So play the game, bring your ‘A game’… and in the end,you’re going to win.”    You can also check out Andrew’s books How to Start Building Your Wealth Investing in the Stock Market My Worst Investment Ever 9 Valuation Mistakes and How to Avoid Them Transform Your Business with Dr.Deming’s 14 Points  Connect with Paulo Caputo LinkedIn Instagram Email  Connect with Andrew Stotz astotz.com  LinkedIn Facebook  Instagram Twitter  YouTube My Worst Investment Ever Podcast 

Ramesh Raghavan is currently the vice chairman of Business Angel Network of Southeast Asia (bansea), one of the leading and oldest organizations of its kind in Asia, as well as an early-stage venture investor and advisor in several start-ups. He is an advisor on risk management in traditional public market investments and alternative investments to family offices and emerging hedge funds. Ramesh previously held global leadership roles in derivatives, capital markets, and sales and trading with Morgan Stanley and the Royal Bank of Scotland and has worked in New York, London, Hong Kong and Singapore. Prior to his career in investment banking, he had a fast-moving consumer goods and commodity trading career with multinational corporations. Ramesh holds an MBA from the London Business School, a Masters in International Business from the Indian Institute of Foreign Trade and a Mechanical Engineering degree from India’s oldest technical institution, the College of Engineering, Guindy, Chennai, India.     Worst investment ever  Investor takes first flight as an angel   Ramesh’s first taste of angel investing happened about 12 years ago when a former college friend approached him to invest in an “execution-type business” that seemed interesting even though it was not a fundamentally new idea. Ramesh listened because the guy had been the smartest person in the room at university and had a good work history with large multinational companies. So Ramesh decided to invest his own funds and gather an investing syndicate together because he believed in the person more than the actual idea.   ‘Too many generals and not enough soldiers’ raises first red flag  After a few months, red flags began to appear. Ramesh couldn’t see any traction. Communications were worse than the usual poor information flow from start-ups. He couldn’t get clear answers when he wanted to know what was happening with the business, and something he has learned with angel investing since is that people tend to take the money for their business and disappear, only reporting good news and failing to provide updates on the bad. Being responsible to his investor syndicate, Ramesh urged his friend to tell him what was happening and if there were any problems. Finally, he then insisted to see the business plan in which he noticed there were eight co-founders, when three or maybe four should be the maximum. That said, he stressed that there should be one “chief”. He also noticed that all these co-founders had significant multinational experience but that nobody was doing the job. Everyone wanted to get paid but nobody wanted to actually do anything. They lacked the inability to actually get down, roll up their sleeves and actually do stuff.   Time to trim inactive ‘leaders’  Ramesh’s first advice was to fire the loafers and change the whole business model. As the company was not making money, the significant salaries had to be cut to zero. If nobody liked it, Ramesh told his friend they should leave. His friend was unhappy, but after months of pushing, the friend managed to get rid of two co-founders. But issues remained. The company’s leaders still had no key action areas for which each person was responsible. So Ramesh worked with him, nearly four or five hours a session, over about six weeks to figure out how to help him create a viable potential business plan that including setting out key responsibilities for each of the co-founders, who were visibly unhappy at the prospect of doing some actual work.   Remaining team fails to listen to chief advisor   After a lot of prodding and mental anguish, Ramesh’s friend introduced him to the remaining co-founders and they found someone able to be best pitch person from the team to raise more capital, which, after a few months, they were fortunate enough to do. This gave them some breathing room. A lot of the time though, Ramesh began to realize that the team would say yes, but they would never take his advice. So the traction was very poor and he learned that it didn’t matter what he said, the red flags were clear. Ramesh also advised his friend that if the current business was not working (which it wasn’t) in the current state of the market, they should pivot the business. The friend was so stuck on his idea that he thought pivoting meant accepting failure, despite Ramesh telling him that every start-up pivots every other day. Great idea do not just take people to success in a straight line.   Investor becomes CEO and tells everyone to adapt or die  It was at this point, Ramesh took over as CEO. He had to put his foot down with the board and the team and say if they were not on board with pivoting, they should leave. After that, two other co-founders did just that which left the company with a team of the ideal size, three or four co-founders. Salaries were slashed and Ramesh had to point out that “entrepreneurship is not a salary-collection business model”. Ramesh said that despite being friends he had to be frank ab out how they should go forward giving life to the business, because he had a responsibility to the investors he had brought into the deal.   Boss tells team weekly to focus on getting customers – still no progress  As another year past, Ramesh noticed that traction was still lacking, and his friend was losing hope. He found that he was not just playing CEO but also playing therapist to his friend while taking a very hands-on approach trying to motivate the people to keep the business alive. Still without processes to manage employees, Ramesh told them to forget everything else and just focus on finding customers to pay for the business, and that all other activities were irrelevant in the scheme of things. Despite getting another investor to help out, he tried to look for progress every week, and every week, there was no progress and hundreds of excuses.   Team continues to do ‘busy work’ without achieving much  So the team was still acting like bureaucrats or employees, just sending out emails to each other. They were too used to working for large organizations, which for most of the time can run on their own. But this was a start-up, running with zero revenue, zero brand value, and zero everything. There were still too many chiefs, and their ability to manage the soldiers was very poor.   Investors call a halt after money runs dry and team effects no real progress  A few more months went by, and the team came back to the investors asking for more money. Ramesh told them there was no more money out there and that they should put in their own funds. They refused. The discussions went on but it all became too much for Ramesh and they pulled the plug. He told the team that, yes, they had tried to do something, it didn’t work out, but stressed that he was more disappointed that they had failed for the wrong reasons. If it didn’t work out for business reasons, that would have been alright. However, the fact that they could not manage the people side of the business, had a top-heavy business model for a start-up – in which the soldiers were not paid and the generals were skimming salaries at the top – was a very bad precedent, so bad that it was very unlikely they could do anything more with the company.     Some lessons  Be clear about the reason for investing in a start-up. Be clear whether you are investing in a business for the sake of friendship or for the sake of business. Be clear whether you expect a return from the investment or not. Once that is clear and you expect a return from the investment then do all the due diligence before getting involved. It can longer, but never invest just on the basis that someone is a good friend, a smart guy, or their successful corporate background, because the start-up life is a different kind of animal altogether.   Don’t invest in a business with too many co-founders. Too many chiefs are waste of time.   Investment must go to build the business. It must not go to supply the founders’ huge salaries before there are revenues and profitability. Look carefully at the business plan and determine whether the “leaders” are eating up the investment in salaries.   In a start-up, people must have a sense of urgency. Every day you have to do something that adds value and adds something positive to the basic objective of driving the business forward: Find customers, lower costs, build a network, raise revenues, or whatever it is, every day.   Don’t cling too tightly to your business idea. A least 90% of businesses start up with an idea does not work, so they have to pivot and figure out a better model for it to work.   It’s very important to take care of your soldiers in the business. They are crucial for the success of your business. First pay the soldiers and then pay yourself. Don’t pay yourself first and leave the soldiers in the air.   Vitally important is the ability to listen to and execute advice. If you execute it and it doesn’t work out for valid business reasons, people understand. But you should not give reasons that are flimsy. Don’t put your excuses on lack of capital or feedback from investors.   In a start-up, you have to be “a hungry dog”. You can’t wait to be fed, you have to hunt down the necessary capital to feed your company. You have to go after people because people don’t come after you. When you work for a large multinational, people come to you. When you are a start-up, you go to the people.   Have a good mix of talent in your team, with defined roles. Such people should be experts in their domain with specific responsibilities, not just people dressed up as co-founders who are doing nothing. Makes sure you can identify the roles, identify the action plan stemming from each role, identify outcomes, and then actually execute your business. Then you will have a much better chance of doing something much more credible.   “When you’re getting into a start-up … leave the baggage of what you did before (at the door) and be open to new ideas. Roll up your sleeves and do what needs to be done to get the business off the ground, because nobody is coming here to help you. You have to go to the people to help yourself.” Ramesh Raghavan Andrew’s takeaways  Collated from the My Worst Investment Ever series, the six main categories of mistakes made by interviewees, starting from the most common, are:   Failed to do their own research   Failed to properly assess and manage risk   Were driven by emotion or flawed thinking   Misplaced trust   Failed to monitor their investment   Invested in a start-up company  Be wary of putting trust in someone who doesn’t fully deserve it. The fourth category of the most common investment mistakes gathered through Andrew’s My Worst Investment Ever series is Misplaced Trust. Ramesh put trust in somebody who was perhaps undeserving on the basis of what Ramesh needed him for; in this case executing a successful start-up.   Investing in start-ups (number six) is an extremely high-risk venture. When you invest in a start-up, it is such a high-risk activity, that Andrew usually recommends against it. Doing business with or investing in friends’ enterprises doesn’t always work, but it can work. It doesn’t always work with family, but it can work. Some people can truly earn our trust through good performance over a long period.   When doing small business, you must do everything. If you’re thinking about going in and doing business, and you think it will give you more time, think again. You’re going to be overwhelmed and you’re going to have to do many things you never dreamed you would have to be doing.  Actionable advice   Never have a business with more than three co-founders, and each must have specific, clear, identifiable responsibilities for what they will bring to the table.   The equity should be split based on what the investors or co-founders bring to the table, rather than the pure capital that they put in.   No. 1 goal for next the 12 months   To figure out exits for some of the investments Ramesh has made so that he can convert that locked-up capital to liquid capital for better uses in the future.  Parting words   Be bold and remember that the first step in making money is actually to lose some money. So don’t worry about losing money, as long as you win more than you lose.  You can also check out Andrew’s books How to Start Building Your Wealth Investing in the Stock Market My Worst Investment Ever 9 Valuation Mistakes and How to Avoid Them Transform Your Business with Dr.Deming’s 14 Points  Connect with Ramesh Raghavan Email Connect with Andrew Stotz astotz.com  LinkedIn Facebook  Instagram Twitter  YouTube My Worst Investment Ever Podcast  Further reading mentioned Gary Sutton (2001) The Six-Month Fix: Adventures in Rescuing Failing Companies 1st Edition 

David Wolf is the founder and executive producer of Podcast and Radio Networks. For more than 32 years, he has been the creative director, music composer, or producer of content for radio, TV, film, podcasts, audiobooks and multimedia. He has been hosting the Smallbiz America Podcast since 2005, which is now syndicated coast to coast in the US on BizTalk Radio Network and on Smallbiz America Radio. Today, David applies his experience along with the skills of his virtual creative team to help companies, organizations, entrepreneurs and thought leaders grow their brands and businesses through podcasting, audiobook production and internet radio.   “But as you know from hearing these stories, we get emotionally connected to the idea that we can save the idea we thought was the right one” David Wolf     Worst investment ever David, his wife and their two boys were living in Dallas, having moved there from Chicago in 1985 after their marriage. They had successfully built together a successful business producing music for big name brands such as McDonald’s, Southwest Airlines, Chuck E. Cheese restaurants, Exxon Mobil through advertising agencies as primary clients. They also produced work for children’s programming such as the Barney the Dinosaur shows. Music production operation builds to more than half million in annual revenue Upon arriving in Dallas, the keen 25-year-old David worked hard at building his music business, spending 85% of his time driving sales, meeting new people and getting them his music reel. The rest of the time was spent in the studio. With his wife Phyllis, a virtual team, and a collection of musicians and singers, David built up to a peak top-line revenue of around US$650,000 a year. Move to New Mexico proves financially imprudent Around the time he turned 36, he and his family decided to move to Santa Fe, New Mexico, physically moving from the market that was supplying revenue for his business. He admitted failing to fully appreciate the amount of money the business was generating through the creative work and overlooked considerations of capital preservation. Riding the wave of past success, they moved but eventually the reality of being removed from their market dawned on them, so they decided to move back to Dallas to try to regenerate what they had started around a decade earlier. Return to Dallas fails to recreate past wins Back in Dallas, they could not generate the kind of success they had seen before. There was new competition in the market, David and his wife were older, nearly 40, which in that business is considered a little bit old because the decision makers in ad agencies are in their 20s or 30s. So the move back failed to take. So they found themselves asking the question: “What are we going to do?” Brother calls with idea to take over cousin’s bankrupt bagel business Then, possible light shines from the dark. David’s brother in Albuquerque, New Mexico invites him to get involved in a popular retail and wholesale bagel bakery brand in Albuquerque and Santa Fe that had been run by their cousin but had gone bankrupt after attempting to grow too fast. David’s brother understood the physical side of the business whereas David knew nothing about it. He did however know how to market products and was drawn to the idea of something completely new in distributing an edible commodity. Buying an operation for $75,000 that had made $3.2m at its peak seemed smart So he and his family moved back to New Mexico and negotiated to buy with his considerable savings the assets of out of bankruptcy for around $75,000. He also was attracted to the business as it had been generating $3.2 million at its peak, so it felt like a good idea. But it was a very complex business that required knowing a lot more than he realized, with 30 employees, wholesale purchasing, and retail came far more complex accounting, than his experience of getting a creative fee and then paying musicians. But, David learned a lot and was excited to do so. The media picked it up as it had been a very popular brand, had seven retail stores, and they were selling to businesses such as Cisco, Shamrock, Whole Foods, and Wild. Walks in blind to complexity and risk of business type So he walked into an infrastructure set up to make the product and he was blind to the complexity and the risk that he was undertaking. That said, the recipe was great and there were a lot of underserved people in the Jewish community. Even so, the massive chain, Einstein Bros. Bagels had entered the market and had tried to buy out the cousin. It is a large publicly traded company began to do better than his cousins company, mostly because they really know how to run a chain of stores. Operators inherit unnecessarily massive warehouse After the bankruptcy proceedings, they found ourselves with 12,500 square foot warehouse, far bigger than the company would ever need. They tried to get around their competitor Einstein through wholesaling while learning how to do so and bleeding money in paying rent and utilities for the massive building they occupied. They raised loans, David used his own retirement savings, they brought in an investor but after eight or nine years he had to give up. Even though it was the worst investment I made he is very grateful and believes he’s a much better business person now because of this adventure. Family management either works well or fails dismally His brother and his wife, David and his wife formed the top management team, in what David admits was a clearly flawed model for many reasons. Some of it he put down to personal chemistry, but in many cases he blames the idea that you have people doing jobs that are inappropriate to their skill sets simply because they are family members. David was technically the CEO, had strong marketing and communications skills, picked up the financial side, raised the money and organized the banking. His brother and wife were bakery people, but they wanted to be equity partners without having capital to put in. This created many problems because they were employees were owners at the same time. There were emotional drivers as well as he truly desired to help his brother who had had mixed fortune. Death knell as company loses last of its big wholesale customers David was feeding his losses with his retirement funds, all the money he had made amassed from his music business, when he was doing what he loved and had knowledge and experience with. He fed the flailing business in the belief that he could save it and in doing so, help his brother as well. It was a painful ending. When David and the business lose one or two of their large wholesale customers, he decided around when the 2008 crash was happening that he had had enough. He was depleted and exhausted. He filed for Chapter 7 bankruptcy and with his family has to a complete restart to life. He admits being emotionally connected to the idea that he could save the idea he thought was the right one. “I really learned a lot in that very painful 10-year period about business.” David Wolf Some lessons  Stay with what you know. Don’t chase the money, don’t chase the deal. Be really sure that you are rooted in something that you can live and breathe in a very full way. David was really successful as a music composer and a creative professional, but he is still not entirely sure why he veered and walked away from what he was renowned for and what he was skilled good at. He explains that he failed to fully understand the destructive nature of walking away from what I already had experience and success in.  “And so that’s one lesson, to really ask the question:‘Do I know enough about this other thing?’” David Wolf    But he had his reasons: He was 40, burned out and quite tired of creating on demand. It also seemed sufficient a reason to just try something new.   Really evaluate and probe the idea of bringing family in to a business. Make sure that the right people are doing the right jobs. David himself on his own podcast has over the years interviewed experts in family business dynamics that say involving family either works extremely well or it is a complete disaster. So in his case, it was the latter category.     “I underestimated the risk of bringing family in, even though it sounded like a beautifully euphoric idea.”  David Wolf    Never underestimate the complexity of a business you are investing in. David threw himself into a business he knew very little about and then relied on his brother for the knowledge about baking.   Examine the fixed expense base thoroughly. David said he was foolishly optimistic that he and his family team could grow the business and underestimated many of the costs involved, especially plant rental and warehousing costs.  Andrew’s takeaways  Hold cash flow as sacred once you have it. Coddle, cradle, nurture, hold as on to and keeping building it. It is so hard to create cash flow in the first place that, when you have it, make sure you take care of it, build it and protect it. Most of all, don’t walk away from it for any reason.   Complexity is risk. Andrew says he and his coffee business partner and are always discussing ways to reduce complexity. He said he witnesses risk building up in areas of their business when complexity is growing.   If you feel costs getting too high, cut immediately and massively. The Andrew cites Gary Sutton’s The Six-Month Fix for this takeaway. In the front of this book about turning businesses around.  “If you’re the CEO of a struggling business, let’s hope we never meet. I’m Gary Sutton, a turnaround guy. When I arrive you leave. Results usually get better and fast.”  Andrew Sutton, quoting Gary Sutton You have to focus on right person, right job.  Andrew says this is critical for family and business in general. Bear this idea in mind constantly. Another way to think about this, and it’s very important, is to ask yourself the question:   “If somebody bought out our business, and they were going to run it, would they put us in charge? …Or would they go out and put a different person?  Andrew Stotz   Actionable advice   Peel back the layers of your emotional onion to really understand why you’re making a decision, whether that decision is to buy a business, turn a business around, start a new business, get into a franchise, or start a hobby and develop a business model from it. Really understand the why behind the direction you are about to take. Because, if you’re not emotionally connected to the purpose of the business, it could really hurt you down the road.   Understand and do not underestimate the power of complexity and the power of risk. Risk shows up in a lot of insidious ways so try to determine what you don’t know about the path you’re about to take.   No. 1 goal for next the 12 months   To quantify his objective. David is building a virtual team while building his business and he’s received advice to do this.   “I’d love to see it hit the quarter of a million dollar top-line mark, because our gross margins are looking really good.”  Andrew on goals in general  “I highly recommend for yourself as well as listeners, and I try to keep myself to this”   Write down your number one goal.   Identify the top three obstacles to achieving that goal.   Write down the next few steps that you need to take to get to that goal.  And especially for David after listening to his story, and thinking about all of the podcasts Andrew has done …   Write down the risks.  Parting words   “I’m grateful for the opportunity to tell this story becauseit helps me really internalize it and point to the future, as you suggested. So thanks for having me.” David Wolf You can also check out Andrew’s books How to Start Building Your Wealth Investing in the Stock Market My Worst Investment Ever 9 Valuation Mistakes and How to Avoid Them Transform Your Business with Dr.Deming’s 14 Points  Connect with David Wolf Linkedin Twitter Website Facebook Email Connect with Andrew Stotz astotz.com  LinkedIn Facebook  Instagram Twitter  YouTube My Worst Investment Ever Podcast  Further reading mentioned Gary Sutton (2001) The Six-Month Fix: Adventures in Rescuing Failing Companies 1st Edition