Striking Out On My First Investment

by | Jul 2, 2024 | blog

Hello and welcome! I’m excited to share our very first issue of InvestOr Regret, a newsletter dedicated to exploring the multifaceted world of investing. Drawing from personal experiences, we aim to guide you through the complexities of financial growth.

Today, I will discuss three lessons I learned from my first investment and its significant failure:

  1. Fear of Missing Out (FOMO)
  2. Lack of education and knowledge about investments.
  3. Not knowing when to exit an investment.

Fear of Missing Out During Tech Boom

Fear of Missing Out

In 1999, the tech sector was booming. Having recently graduated, I watched as my peers, armed with degrees in computer science and electrical engineering, quickly became wealthy—at least on paper. As a civil engineering graduate humorously we all were deemed the “dumb civil,” compared to our friends who were Chemical or Electrical Engineers. The joke was to graduate you needed to understand three things: (a) you cannot push on a rope, (b) dirt and water equals mud and (c) shit flows downhill. So here I am, feeling the need to get in the game and feeling pressured to participate and overcome my FOMO. So I took two years of savings, which was $5,000, and I invested in WorldCom. During this time, WorldCom stock was skyrocketing, and they were on the verge of acquiring Sprint. It seemed like a sure bet. Unfortunately, as many of you may know, WorldCom went belly up and was Enron before Enron.

This investment did not end well, as WorldCom collapsed. Looking back here are some lessons learned: The Fear Factor My FOMO was strong; I wanted to match my friends’ success without understanding the investment. This experience made me hesitant to invest again for years. Looking back, this likely saved me from further mistakes but also kept me from exploring potential opportunities like real estate, which seemed too costly due to my earlier missteps.

Today, the echoes of the tech bubble are visible in the real estate boom. On forums and message boards every other post pertains to investors wanting to get into real estate and the fear of missing out has pushed many into precarious investment positions. We are seeing “gurus” teaching investors who are not qualified to buy a home to acquire them with little or no money down from “creative financing” strategies which for many will lead to a significant failure due to my next topic, being uneducated and lacking experience.

Being Uneducated and Lacking Experience

Uneducated and Lacking Experience

I assumed WorldCom would be the next big hit. Despite what appeared to be thorough research, I was inexperienced and the information available to me was tainted by corporate fraud. I had never invested in stocks before, and the research I performed was most likely the equivalent to the education you would receive from the first week of an introductory collegiate course.

Additionally, investing all my savings into a single stock demonstrated a lack of diversification and experience. But I thought at the time, I was in my 20’s and let’s go for broke, and broke is where it led me. Today, as a gray-haired CEO, I’ve learned to seek advice and leverage the knowledge of more experienced professionals.

Reverting to today, being uneducated and lacking experience can place novices in precarious positions, particularly evident in today’s real estate market. As an investor, I’ve learned to prioritize the experience of the sponsor, much like selecting a pilot for a flight. While a novice pilot possesses the necessary training and skills, in turbulent weather or mechanical difficulties, a seasoned pilot’s experience provides undeniable comfort and security. This preference for experience is analogous to most business hiring practices; we invariably value proven experience. In real estate, where the stakes are high and the terrain often complex, the value of experience cannot be overstated. Novice investors and sponsors can indeed succeed, but given the choice when choosing a sponsor, I lean towards experience every day, as it often makes the critical difference between navigating safely through storms or potentially crashing.

Knowing When to Fold

Knowing When to Fold

As WorldCom’s stock plummeted, I held on, hoping for a rebound that never came. I was naïve but losing it all taught me the value of acknowledging a bad investment early on. My inexperience showed as I kept thinking it would turn around. For those in real estate, many think they can turn around an underperforming property. Have you ever had an underperforming property? How often has it turned around? Today we are seeing a significant increase in capital calls on multifamily investments. How many capital calls have you been a part of that turned it around?

While a tough pill to swallow, I learned from this. Today, in my current role, as the CEO of a mortgage note fund, we face underperforming assets. We take emotion out of the situation. Learning to cut losses early and reallocating resources to more promising investments is a critical skill that is not taught but learned.

Well, that is a wrap. If you want to learn more about my journey, visit us at https://7einvestments.com/webinars/

Your thoughts and feedback are incredibly valuable to us. I hope you find inspiration and valuable information in each issue, and I encourage you to share your thoughts, stories, and questions.