7 Unusual Lessons from 20 Years of Investment Failures

Part I

In this 3-part series I detail 7 expensive lessons I paid for at the University of Wall Street. I use my investment due diligence process as a narrative and have altered the names, dates and places to protect the innocent (and not so innocent). So here goes:

Lesson #1: A great investment is as rare as a vein of Gold!

Just how rare is gold?

Plunging into the depths of the Earth, this mine once reached a depth of 2 miles!

Now a re-created Victorian city, Gold Reef City in Johannesburg South Africa, was built on the grounds of the former Crown Mines.

The buildings and part of the mine, mine shaft no. 14 to be exact, is included in the park. Actually it was the 13th shaft but they skipped this number due to superstition.

Equipped with a helmet and a miners lamp visitors go down the shaft in a cage to the top level of the mine where they get to see the bedrock :-

Sandwiched between tonnes of hard rock, only extractable through blasting, lies the thinnest of veins … Golden veins.

As in mining, great investments are extremely rare. Expect to go through many layers of dross to find that fantastic investment.

In my experience great investments simply don't POP up, they are usually dirty and covered up with lots of hair (complexity).

Peter Thiel summarizes it well in this quote which is as applicable to finding a great investment as finding the next Facebook:

“I think in some ways the really good companies often couldn’t even be articulated…we didn’t quite have the right words. Or maybe they were articulated but were articulated in terms of categories that were actually misleading,” – Peter Thiel said.

Lesson #2: When destiny arrives in the form of coincidence take note!

Let's face it, investors can be a superstitious bunch.

I for one have had good success when an investment or a manager hits my desk at the SAME time from multiple different sources.

Perhaps it speaks to the marketing success of the manager, they spread themselves far and wide, but there is no particular reason why such serendipity should result in a good investment.

Nevertheless it has … numerous times.

Take for example Steven Skinner from Wendywood Partners.

First brought to my attention by Mark Thomas of Marblewood Partners, a tough SOB of a client if ever there was one. Mark was an investor in my Northview Alternatives fund and was brought into the fund thru the marketing efforts of longtime friend and soldier in arms Daren Block of Round the Block Funds.

What made Mark so tough was his unrelenting pursuit of investment excellence through EXTENSIVE due diligence and a take no prisoner attitude. Getting his clients out at the first hint of trouble and asking questions later.