On Monday of this week, it was my birthday.
I celebrated it in Toronto with the family of my wife – and coming from the south of France, snow-covered Canada is a healthy change.
But Monday was also the day that I found out that one of the companies I have been invested in for years might have been a fraudulent scheme meant to simply enrich the founders at the expense of shareholders.
In simple terms, the founders are accused of a laundry list of abuses of shareholder capital, including buying property cheaply and re-selling it back to the company at a huge markup.
In this instance, investigators estimate that the founders could have made $5 million on one transaction alone.
When I first invested in the company, it was a private business that attracted tens of millions of dollars of investment.
Roughly a year ago, the company went public in Canada, meaning it was available to be bought and sold on a daily basis (unlike private companies which are difficult to buy and sell).
So when the news broke that the company might be a fraudulent scheme, the stock tanked nearly 40% in a matter of hours.
As one of the larger positions in my Venture Fund portfolio, I quickly sold my shares and realized a loss.
Luckily, however, my life doesn’t change because of it. In fact, the loss has virtually no impact on my quality of life – besides being a downdip on my investment track record.
My wife and I can continue traveling the world as we want and live the life we desire.
But this is likely only the case because I faced a similar experience in the past – and learned my lesson.
You see, about four years ago, I made a heavily concentrated bet with my entire portfolio on one trend – the recovery of oil prices.
As an entrepreneur, I have always had confidence in my ability to judge opportunities, and my ability to act on them. Without it, I would never have done anything.
So when I thought the price of oil couldn’t fall any further, I borrowed 50% of my entire portfolio to bet on what I thought was the inevitable rise in the price of oil.
Keep in mind, that this was a loan of 50% of the value of my entire net worth (which at the time was only in stocks)… PLUS my entire actual portfolio.
In other words – I bet everything I had – and 50% more that I didn’t have.
Obviously, this was a highly reckless move. I had no idea what I was doing, but given my previous success in the markets, my hubris made me think I was destined to win on this one.
So as you can imagine the story goes, a few months later, the price of oil dropped 30% in just a few weeks.
When it did, my stock portfolio, which was supposed to guarantee my loan, was now worth less than my outstanding loan… in other words, I was underwater. On paper, I was broke.
The bank quickly figured it out called in their loan and asked me to sell everything.
Luckily, by the grace of the universe, the most generous people in my life agreed to bail me out and provide the liquidity I needed so I didn’t lose everything.
Ultimately, I got lucky and my bet turned out right. When the oil markets recovered, I made a hefty amount of money. I repaid the loan in 4 months.
But I will never forget the pain and humiliation that came with asking for that bailout – and stretching myself that thin.
I learned a strong lesson in humility and swore to never put too much money in any one thing – no matter how good it seems.
So when the news story broke out on Monday about the potentially fraudulent company, I lost close to $100K in a few hours.
The truth is that it was a company I strongly believed in. The business plan was brilliant, and the market trend was strong.
But my blind spot was not recognizing the founders - and management - as potentially fraudulent. That blind spot cost me $100,000.
Unexpected events do happen – and almost nobody sees them coming. In this case, none of the potentially illegal transactions had been disclosed to shareholders.
However, unlike last time I suffered a loss, this one didn’t strike me at the knees – because I didn’t allow that to happen.
Instead of only highly concentrated risk, I today have vastly diversified investments around the world that support my lifestyle, no matter how hard the blow.
Wiet and I have both experienced heavy losses – and so has every successful entrepreneur and investor we’ve ever met.
That’s the reason that today, we divide our portfolio into two parts… the Venture Fund, where we take risks, and the Financial Freedom Fund, where we invest for lifelong security.
Most people we meet own too many ‘risky’ investments, just like we used to ourselves. But once you experience a heavy setback, you learn the importance of diversifying into safer investments too.
Today, I encourage you to take a look at any investments you may own.
Where do they fit? Are they safe, or highly risky?
If you own too many risky investments – stocks you think will skyrocket, cryptocurrencies or anything you think will grow in value – I urge you to learn from my personal experience:
Never own too much of any one thing, no matter how much you believe in it.
If you have never lost money – I can almost guarantee you that one day, you will. The key is to ensure that when you do, it doesn’t strike you at the knees, or ruin you financially.
That’s why we have two portfolios – distinct from one another.