7 Lessons Learned From Losing $739,135 In Bad Investments

losing money

Have you ever read a story on TechCrunch that talked about how some angel investor made a few million bucks investing in a hot startup like Dropbox or Airbnb? When you read all of these stories, what does it make you want to do?

Invest, right?

I got into investing years ago because I thought it was sexy and all of the cool kids were doing it. When I first started, I lost a lot of money. Eventually, however, I figured out how to make money.

Before you start throwing your cash around, here are a few things you should keep in mind:

Invest in what you know

Warren Buffett has a great investing rule: he only invests in things he knows. If he doesn’t understand the business, he doesn’t touch it.

I took a much different route when I first started. I invested in whatever I thought was sexy. A lot of those sexy businesses seemed cool, but they lost me money.

You should only invest in things you know. If you want to start investing outside of your knowledge base, that’s fine as long as you are willing to lose some money to learn a new space.

Don’t get too greedy

When it comes to making money, I used to be one of the greediest people out there. I always wanted to sell during the peak, and if I didn’t time things right, I would get upset.

Because of my greed, in a few cases, I lost money when I could have made money. Guaranteed money is always better than potential earnings.

It’s very difficult to maximize your potential earnings. If you have an opportunity to cash out on one of your investments and be happy with the return, take it. You can’t predict the future, so unless you have data to show that you should keep the investment, sell it if the price is right.

Profit is more important than revenue

The biggest investment mistake I used to make was that I invested based off revenue growth. If the potential investee had great growth, I would instantly write a check.

The issue with this strategy is that not all business models are profitable. Even if a business has great growth, it doesn’t mean it will be able to turn a profit in the future. You need to analyze the business to make sure its margins are good and that it has the potential to turn a profit in the future.

There is nothing wrong with investing in high revenue companies with fast growth, but you have to make sure their business model has the potential to turn a profit in the future.

Ideas are a dime a dozen

It doesn’t matter how good an idea may be, if the team behind it sucks, the business won’t go anywhere. Do yourself a favor and don’t invest in ideas… invest in people.

In an ideal scenario, a business should be a good idea, and it should be run by awesome entrepreneurs with a team who are fast at executing. If you can’t find an investment that fits these criteria, you should reconsider the investment.

Companies typically pivot from their original business models they thought would do well. They will have to adjust their strategy and come up with new ideas. But if the team isn’t good, you’ll lose your money because they won’t be able to pivot.

You make money on the buy, not the sell

It’s rare that someone is going to pay for something more than its market price is. For this reason, you should try to get the best possible deal when you first make the investment.

If you think there are no good deals, think again. There are always good deals, you just have to search for them.

For example, I was able to pick up a penthouse condo in Las Vegas in the highest rated building on the strip for only $250 a square foot. All of the other comps where showing that people were paying just over $600 a square foot.

I know, the deal may seem too good to be true, but the developers wanted to move the inventory, so they sold all of the penthouses to a group who could buy them all… I happened to know one of the individuals, so I was able to pick up one property.

I now have the option to sell that unit for $350 a square foot, and it hasn’t even been 30 days since I bought it.

If you hunt for good deals, you will find them. As an investor, you have to keep in mind that you are only as good as your last deal. So, make sure you choose them carefully.

Don’t spread yourself too thin

Both from a financial standpoint and a time standpoint, you shouldn’t spread yourself too thin. I currently have over 30 investments because I used to take a spray and pray approach with my investing.

The problem is that investments aren’t as passive as you think. The more time you spend on each of them, the more likely they’ll succeed. So if you have 100 investments, it’s very likely that you won’t have time to help most of them.

From a financial perspective, many of your investments will require more capital in the future… even if right now it doesn’t seem like they will. You should always keep a good portion of your cash in the bank in case you have to dump more money into some of your investments.

A good example of this is a realtor named Neil Schwartz, who owns dozens of rental properties in California. During the recession, most real estate owners got in trouble because tenants couldn’t afford to pay their rents and property values plummeted. Neil did well during this time because he was sitting on enough cash to continue to pay the mortgages on his properties when they were sitting vacant.

Don’t put all of your eggs in one basket

If you are just starting out and you don’t have a lot of cash, sure put all of your money into one business… because that’s what can help you become rich. But if you already have built up a nice nest egg, spread your money into multiple investments. This way if one goes wrong, you won’t lose all of your cash.

But you already know that.

What I really meant by “don’t put all of your eggs in one basket” is that you need to diversify your risk profile. Don’t only invest in risky investments or safe investments. Make sure you spread your money in different risk profiles.

I used to invest only in revolutionary ideas that are likely to produce big returns. Those ideas, however, are really risky, and most of those investments will fail. It doesn’t mean that you shouldn’t invest in big, bold ideas, but you should also invest in safe bets.

These days I have my money in real estate, Internet companies, the stock market and a handful of other sectors.

Conclusion

I hope you won’t make the same mistakes I’ve made because it lost me a bit too much cash. I eventually learned how to pick better investments, but my hope is you won’t have to waste a lot of time and money like I did.

In addition, if you want to get into the investing game, make sure you do it only if you are willing to continue to make bets over the next five to ten years. Investing isn’t a short-term game, and over time you’ll be able to increase your odds of succeeding.

What other mistakes should you avoid when investing?

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Comments

  1. Hey Neil great post. I think you should have a contest and winner gets a night to rage out in Vegas at the new penthouse :D

    I think it’s important to think logically and listen to the numbers. Like you said, profit > revenue and it’s also good to not get emotionally tied, ex. a friend you know is starting a company and wants you to invest. Business and personal should be separate when it comes to investing, if you want to make money.

    -Amir

  2. Getting greedy is what that makes people lose their money, They want more and more and end up with nothing!

    Winning and losing is a part of game Neil. Agree? :D

    Regards

  3. Some great lessons Neil, for me the most important lesson I’ve learned this year is to invest in what you know, and the same goes for starting a new company. You have to know what you’re getting yourself into before you take the leap.

  4. Great lessons here, Neil and you’re so right about investing in what you know =).

    Btw. Love the new optin form, the one which overlaps the content area.

  5. 7 very good lessons, Neil. I particularly agree with the fact that the money is made in the buy, not the sell. People make this mistake all the time and it costs them dearly.

    This post has been shared and crowned king on Kingged.com

  6. Two conflicting thoughts in the same post. I have already faced (and facing) this problem.

    Spreading myself too thin vs. Not putting all eggs in one basket.

    The thing is – there is no 100% passive income source. Some investments are more passive and some are less passive. The ones with “higher income passivity” needs more time to build and the one which can fetch returns immediately have less passivity (example, a 9-5 job).

    So let me consider myself as a corporation. Deepak, Inc.

    Everything I earn (or my company earns) is tied to some activity I do. Now I have different ideas and I can run multiple projects but I would be spreading myself too thin and then I would be chasing two rabbits and catching none. If I just do one thing, it may succeed, but if it fails I don’t have a backup.

    Now where do I draw the line. HELP! (I have read a lot of books and browsed a lot about it but till today I can’t draw the line).

    Neil, Looking forward to your reply.

    • You need to ideally stick with 1 idea that you are passionate about and feel that you can make money with it. That idea needs to solve a problem in the world that people are facing.

      Focus on 1 thing, even if that means you make less money in the short run.

      Once you have a ton of cash, you can then diversify.

    • Go with your most rooted passion, drive with relentless customer service and work habits. If that doesn’t work overtime, try something different but not so different. Ever wonder how Steve Jobs did 10x better the second go around with Apple. Stick to what you know, do it better than anybody else, and of course, be humble about it when you succeed!

      Do not run into too many ideas in the beginning, your lack of experience will fail you. Try building up more experience in “less” things, and go from there.

  7. Really inspired by your line “Don’t pull all your eggs in single basket”

    Between, Up and downs are common in a game. I’m sure you’re smart enough to over come this lose.

    Keep going! good luck

  8. Holy Crap $739,135?
    I really agree with you on that ; Ideas Really are a dime a dozen !! That was some great lessons Neil.
    You should have included that story of the Dog which lost it’s Bone by barking at the reflection :) !
    Thanks for sharing.

  9. Money is what pressurize everyone to invest and if they got success one time they become greedy and start investing huger money and one loss,takes out their all profit.

  10. Good stuff Neil. As a fellow investor, I can back up everything you said – at least on the real estate side. I think the “make your money when you buy” thing is especially important.

    To add an 8th lesson, I’ll add “Your investment isn’t worth anything if you don’t manage it right.” You could get the best deal in the world, but get the wrong tenant or invest in the wrong team (like you said) and you could lose the whole thing. Acquiring the investment is only part of the equation – managing is the other part.

    Thanks Neil, as always.

    P.S. I really enjoyed your appearance on the Smart Passive Income Podcast! Very insightful.

    • Brandon, thanks for reading. You bring up some great points. Management is always going to be the main factor towards long term growth.

    • Let me speak about real estate. It is all about getting the “deal” — I agree with Neil about what you pay for the deal. If you are able to pay 20% to 40% less than anybody else is paying on average in the real estate universe when you do invest, you are already on top, even if the price never appreciate, not one penny more.

      Neil was able to pick up that sweet Mandarin Oriental deal because he knows the right people and right connections. In this world, it is all about who you know, more so, than what you know. But, what you know can steer you into the right places, thereby, who you know is a direct relation to what you know.

  11. If I am going to invest in anything one day I will keep your tips in mind :D
    best regards!

  12. Great post, Neil.

    Investment is a very serious subject, and anyone that wants to succeed doing it should be in to take lessons from anecdotes like this. I will always refer to your tips when time comes for me to invest in the future :)

  13. Neil, You always bring out the best

    I would like to add one lesson that I learned about investing in Real estate and its about taking risks and having a diversified portfolio.

    “Never measure the depth of the river with both your feet”~Warren Buffet

    “Never keep all your eggs in the same basket”~An Old School Investor I came across

    I get everyone gets the pointy and these are great tips. I will follow them

    • Adnan, thanks for these quotes. I will use them sometime :)

    • It is all about taking the RIGHT RISKS, not really about just taking risks. You gotta know what you are doing, build up your reputation as a strong negotiator so you always get the best deals. All others can come second or third.

  14. Investing in an industry you dont understand is a disaster. Most investors who are good at what they do never go in blind. And of course profit is more important than revenue. Investing in a promising business with potential makes lots of business sense.

  15. Hello Neil Patel,

    If there’s any of those INVESTMENT/ BUSINESS lessons i highly resonate with. it’s don’t be GREEDY and don’t put all your eggs in one basket.

    Although i learnt this the hard way AS I HAD MY FINGERS ENTIRELY BURNT and i’m not even praying for my enemies to experience such because it made me lost my tuition fees.

    i was completely and immensely overwhelmed with the possibility of the investment gains that i didn’t even bother to consider the risk.

    The outcome of my selfish decision soon caught up with me, school was on my neck for the fees payment which had a deadline and plus the fact that i was psychologically traumatized for a while before i bounce back and promised never to make such an immature decision in my business life again…………

    Maybe the amount might not be as huge as yours Neil Patel but needing the money and not getting it back could almost assassinate a chicken mind individual.

  16. One mistake I’d like to add is this:
    When investing, don’t let your emotion controls you.
    Be objective and let the numbers talk.

    I made some investment in the past and lost money because I get emotional about it.
    When I make a decision to “let the numbers talk”, it gives me a much better result.

    I think it’s crucial in investing game.

    Thanks Neil,
    Love this article :)

  17. Excellent advice as usual Neil and I am looking forward to using a lot of it as soon as this venture takes off which i believe could be fairly soon.Thanks again always appreciated.

  18. I like the key message from Mr. Warren Buffett about investing. I often take help from my friends, seniors and relatives to understand schemes or investments properly. It’s good to take precautions before you do something wrong with your investments.

    Good job Neil.

    Regards,
    Amrik!

  19. Nice money prevention lessons and i observe one common point in most of blogs that is don’t put all eggs in one basket.I realize with this sentence.Thanks neil

  20. Neil whether its investing or starting a new company,if you do what you know or like to do what you love the most at any situation,you will get the success.

  21. Great Blog post, I have learned many things from this blog, thanks @Neil

  22. Brenda Layman :

    Also, be willing to keep your eye on your investments. Things can go south quickly and you don’t want to find that out after your investment has bottomed out. Buy low, sell high, and as you said, don’t be greedy, and you’ll make money.

  23. I would also add: start small. There is a temptation to go balls out when first getting into a market. But if you make sure that your first investment is doing well before moving on to the next one. That can go a long way to making sure that you have enough time and cash to fix any problems, instead of having 5 things blow up at once.

  24. Thanks for a detailed post Neil.. But, Its really make sense to me while learning from your experiment.

    Hope you learned a lot again..

    I wish always have your guides mind as I am looking to invest in something big.

    Thanks much Neil.

  25. This is great advice! I often finding myself wanting to be aggressive and invest everything into one stock so that I get a huge return. Reality doesn’t work that way. Thanks for the advice!

  26. Neil,

    Did you read The Intelligent Investor (by Buffet) or the Securities analysis (by Graham – buffets mentor)? These two books preach what you just wrote. The main thing is investing in stuff you know and in buffets book -investing in people not idea’s. That was actually something Buffet came up with on his own and the main difference between him and graham. I used to be in the finance industry before I started SEO. These two books were really great for investing advice….I just ultimately switched to SEO because I found it harder and harder to get up for work each day when I was working in finance. It just sucked the life out of me. I would like to get back into it, but only working for myself instead of someone else.

  27. Re: “Ideas are a dime a dozen”.

    It’s also important to look at the integrity of the team behind the idea.

    The business model I used when I started my company 4 years ago was flawed and eventually failed. After a consultation with Neil 6 months ago, I changed direction, added another component and have had a 100% closing ratio on all clients I spoke to since then!

    I could have started a new company for this new business model and the original investors would have lost everything but instead chose to make it a part of the original company.

    Look at the past record of the team when they have had failures.

    Thanks Neil for your advice.

    Jim

  28. Jatin Chhabra :

    Hi Niel,

    With all do respect, I don’t believe in this para “It doesn’t matter how good an idea maybe, if the team behind it sucks, the business won’t go anywhere. Do yourself a favor and don’t invest in ideas… invest in people.”

    The people power is important, but the idea sits at the top.

  29. What was this $135 at the end of the 6-digit loss figure?

  30. It’s a tough balance to strike between being to loose + over ambitious and conservative + puckered up too tight. It sounds like your experience has served you well!

    Outside of your personal contacts do you look anywhere to find start up opportunities. Is it a story of they come to you?

  31. Great article and… a great investor is born :) I am always looking for investors that clearly see the future in my startup, so you got that right about understanding the business. Apart from suggesting other investors to read this, I will also encourage founders to do the same, helps you understand what you should look for! Rock on ;)

  32. One issue I’ve come across with many internet startups these days is the use of LLC structures “to keep things simple” (vs. C Corps). That exposes investors to K1s and tax gains on any profits they make, which investors may not have the cash to cover if the startup doesn’t cut them a check. It can get messy. Admittedly they also get potentially useful tax losses in the early pre-profit days, but I personally am loathe to invest in anything but straight equity C Corps.

  33. Thanks Neil! Always inspired to read your email and learn from your experience… I think it’s good to invest in something unique that really reflecting your strength and passion…Also stay away industries if there are many substitutes and alternatives…

  34. I like this idea: Don’t spread yourself too thin. And borrowing too much is dangerous in investing. That’s a double sword.

  35. Neil, be careful not to misconstrue Buffet’s investing in multiple companies as pure diversification. He says (paraphrased) “to put all your eggs in one basket and then watch that basket carefully”. His “problem” is that he has too many eggs. I think he would endorse knowing a business well and getting fully behind it, but have an exit if things turn negative. Mike

  36. Great post Neil! 2 key takeaways;

    – The money is made in the buy, not the sell.
    – Profit >>> Revenue

  37. #1 Rule: Invest in yourself first.

  38. I would say that one has to be strong if he wanted to invest in anything. Business is like a gamble and you should be ready to win or lose.
    Great post you have here!
    Thanks.

  39. Thanks for the article Neil, very good thoughts.
    If there is something to add, is about partnership. Attractive deals might popup with short decision deadlines. Seek for feedback about your future partners if you don’t know them, before making any decision. If there is something bad, you should worry about.
    All the points from your article are good and meaningful. The top one is “you make money when you buy, not sell”. It comprises the essence of making a good investment. This is not just a simple sentence, as there is a lot behind like: work, information, network, creating the opportunity, following the investment up to the selling moment.

  40. That was some big money you lost there.
    The first lesson is the most important one, if you don’t know a thing about any business, it would be wise to stay away from it or at least do some homework before investing in it.
    That was one great rule given by Warren Buffet, and he also gave the last rule, Don’t put all your eggs in one basket, or you will lose everything.
    Great post Neil, there is always something to learn from your posts :)

  41. Thank you for sharing your experience in investment field!

  42. An investor should not only have Financial sense,but also the artistic sense of picking the master piece. i.e. He definitely shoots the right apple. Interesting Post Neil .. Looking forward for similar posts

  43. “Guaranteed money is always better than potential earnings.” A quotable quote indeed!

    Thanks for sharing.

  44. 1. Beware of tips. If someone (unless they are a director or very close to the information before the public knows) is giving you a tip on a stock etc, they’re probably the last in the chain to hear it, thus it’s worthless, or a rumour spread by those looking to sell
    2. If everyone you meet (friends, taxi drivers etc) in any market is saying it’s a great time to buy, the market is peaking and it’s probably a great time to sell.
    3. Read more Warren Buffet.

  45. dont listen to others, do your own research

  46. Diversification is surely one of the most important points to be considered when investing.

    So is getting up of goals for each investments otherwise human greed would keep one from cashing on their investments when the time is right.

    Great pointers Neil…It is surely going to help people who are new to investing.

  47. Great post Neil!

    Diversification is crucial in investments, but personally money management plays an extremely pivotal role in your potential return and the amount of downside loss.

    Your investments are spread through a variety of markets which enables you to not to focus on one particular entity. Wise plan Neil!

    As a trader and managing client money, we have to continually make sure that our clients funds are invested wisely with the key focus on preservation of their capital.

    • Ken, you make some great points. It is important to diversify to ensure all angles are covered :)

    • You can’t spread yourself too thin. I would not be so diversified because then you lose your edge. Focus on a few things you know and do the best and take them to the next levels. Imagine Donald Trump is Warren Buffet, and Warren Buffet is Donald. They can never do the same thing the other is doing. Go with what you enjoy and good at. Don’t spread too thin!

  48. Awesome tips from a great investor and businessman! :) I remember your tips in my interview with you.

    Thanks Neil.

  49. Really awesome reporting, I’ve learned very important things for this site. For sure I’ll be back and bookmark this site as well. Keep us posted like this.

  50. Hey Neil!

    What is that plugin which asks for being sign up to fully read this blog post?

  51. So … I can’t be the only one who wants to know the full breakdown of the $739,135, can I?

    The point about profit > revenue is so huge, it deserves its own post. Many of my friends/colleagues are so plugged into the VC side of things that they give a confused look whenever I mention the word “profit.”

    What exactly is the endgame there, I wonder?

    Thanks for awesome post, Neil.

    • Great points. I think the end game is doing something with a passion that will keep you happy and working hard toward bigger and better things.

    • Any game you can expect to win some and lose some, the key is to profit, is winning > losing some.

      You are born with certain traits that are better anyone else. Use that and do or invest in the things that will take full advantage of those traits. A billionaire tend to push the right buttons more often, but most importantly, the few right buttons that net them the biggest gains in life.

  52. Hey Such a Nice Post and I like Warren Buffett ‘s investment Rule.
    Thanks for share it.

  53. I know so many people who have invested just because it seems cool, and other people are doing it. But it is not a game it is real life and your hard earned money you could be throwing away!

    Great pointers.

  54. Thanks for sharing your story Neil, I’ll keep in mind as much as I can.

    Best regards from I. C. Daniel

  55. Thank you for sharing all your experience

  56. Hi Neil I read your blog and its very much informative to all bloggers to learn SEO things. Off topic though few months back I’d converted few tags into categories and cats into tags does that affect rankings on Google? after a month I started seeing drastic traffic drop? Has this change caused this?. There are any chances for that.

  57. I have learned some lessons too. I will try to make sure that i will not make these kinds of mistakes which you have done. :(
    Thanks

  58. Neil, As I had said before, you are really a very informative man with some great experience.
    Reading this post reminded me of those bad days when I invested huge amount of money in one business alone and the money disappeared soon. I never did that mistake again and started to invest in small amounts and in different businesses.

    Never put all of your eggs in one basket.

  59. “Don’t get too greedy”, this was my main problem at the start. Because I was too greedy, everything has fallen apart.. now I’m starting again from 0 and I’ll make sure not to do the same mistakes again.

    Good post btw, keep doing the great job.

  60. I disagree with the statement:
    “Guaranteed money is always better than potential earnings.”
    It’s not universal.

  61. well said neil..i understand your feeling because i do the same as u did and lost a lot of money in investment..but all of that were priceless experience and it will make us grow stronger..now,i do know how to invest..

  62. Hey Neil !
    It’s really nice to read the whole article. “Don’t put all the eggs in one basket” I really love this phrase. This is actually true and this thing I have learned after my first investment. This post is very true we must focus all these mistakes.
    Thanks for sharing.
    Abel

  63. Hello Neil, thanks for sharing. Great tips for investors! Few months ago I invest some money in gold market. My mistake was invest when the gold price is rising. Now I’m lose about $18k, hope gold price will increase asap. Neil, do have any advises or tips for gold investors? Tq

  64. excellent I loved it ..
    greetings.

  65. The second suggestion is a bull’s eye one especially when you kind of get in the zone of investing and you’re on a roll of cashing in more money. When that happens, you tend to want more; and that’s where the end of your success starts.

    By the way Neil, read this on Kingged.com, an IM social networking site. :)

    • Riza, Great points. It’s all about chasing after that next thrill and trying to achieve the dream of making it big over and over again. I will check it out!

  66. Hello Neil !
    This a great post. Well, I am happy that you have shared your experience with us. This is a guideline for us. “Don’t get greedy” this is what every person should take it seriously. Otherwise you would not be able to maximize your profit.
    Thanks.
    Barrett

  67. Hello Neil !
    There are always good thing to learn from bad investments. I am grateful to you that you have posted this article. I totally agree with you that these mistakes should be avoided. Most of the people don’t avoid putting all the eggs in one basket. This sounds a minor thing but its a great thing for consideration.
    Thanks for sharing this article.
    Keegan

  68. Valuable advice contained in the Seven Lessons!
    Enjoyed the Read!
    Dave

  69. I was suggested this blog via my cousin. I am not sure whether or not this submit is written through him as nobody else recognize
    such specific about my problem. You are incredible! Thanks!

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