By David Merkel, CFA of AlephBlog
This is another Aleph Blog series of indeterminate length. I won’t bleed as much as my friend James Altucher, but I will reveal the worst investments of my life. There have been a lot of them. Good investments have more than paid for the losses, but the losses were significant in two ways:
- The losses were large enough to hurt.
- Each loss taught me something; usually I did not make the same mistake twice.
After I finish this series, I hope that it can serve as a guide on what to avoid in investing for younger folks, so they don’t repeat my errors. Okay, older folks can benefit as well… and maybe along the way, I’ll throw in a few colorful stories of investments that weren’t losses, but still taught me something.
At this year's SALT New York conference, Cathie Wood, founder, and CEO of ARK Investment Management LLC, spoke about her view on Bitcoin, the outlook for Tesla and Ark's investment process. Q2 2021 hedge fund letters, conferences and more The investment manager explained that the team at ARK has a five-year investment horizon, with a Read More
Here we go!
In the late 1980s, I fell prey to a boiler room scam. I was relatively new to investing for myself, though I had paper-traded stocks for years, and was seemingly able to pick good stocks. So why did I give in to the slick sales pitch? Inexperience, for one, and slack capital for two — in my late 20s I really did not have a plan for what I wanted to do with my slack capital. I had done some investing in the stock market, but made money too quickly, and I feared that the market was once again too high (isn’t it always?).
Regardless, it was pretty dopey, and ended up being a 98% loss. A class action suit was created, which after 8 years ended up with nothing for any of the plaintiffs, and as far as I can tell, the lawyers lost money as well, since they were seeking a share of the recovery. Somewhat bitter at the end, the law firm closed its last letter saying something to the effect of, “At least we have the satisfaction that all of those that we have sued have lost all of the money that we can find.” Cold satisfaction, that.
I can tell you that the experience made me unwilling to transact any personal business over the phone that I did not initiate. For long-time readers, this helped lead to my saying,
Don’t buy what someone wants to sell you. Instead, research what you need, and buy that.
That’s a good lesson to begin with. Till next time.