How I Lost Half a Million Dollars

Blog post numero uno my people.

Many of you may follow me on social media or know me in real life, which tends to be rare these days.

I love writing. Am I good at it? Well, I think that depends on your definition of good. If you want impeccable sentence structure and pristine grammar, I’m likely not your guy. But my hope is that you will look past those shortcomings and hear my heart and my voice. Now that my disclaimer is out of the way, let’s get into BPNU (Blog Post Numero Uno).

I’ve literally been dreaming in the language of business. It has been hard to turn off lately. Until recently, I was doing very well at turning things off. This market shift has caught not only me but many good investors off guard. Many people won’t say it, but we’ve lost a shit load of money this year. That’s just the truth. I have been reminding myself of that fact. However, when I think about the macro environment, the smartest money in the world got creamed this year as well.

The major investment funds with unlimited data and quant brains. Whacked.

The Chamaths of the world. Whacked.

So little ol’ me flipping homes and running small businesses was subject to the same massive and abrupt market turn. These are the facts, but you know what? It’s ok. I’m thankful for many of the lessons I’ve had to learn these last 90 days. I was forced to look at my businesses and see the holes. I could no longer allow cash flow to hide the ugly or inefficient in my world. I hope saying this publicly can help you do the same.

So, where did I go wrong?

Let’s identify some of the ways I lost money this year. First was crypto, shocker, I know. You can look at this positively I was able to fund a quarter million dollars into an investment strategy in less than a year. That is pretty awesome. I was able to create that much cash and was willing to take the risk to increase it. I’m proud of myself for that. The problem is, I didn’t do the appropriate amount of research and work to be great at it.

I would listen to this guy, watch this video, and would suddenly become the expert on the subject. I’m an idiot. So I “wisely” dollar cost averaged my way into Bitcoin and Ethereum at values over 30k and 3k. If you follow crypto today, you’ll understand why that isn’t good.

I felt I was doing it right. It was working! Holy shit, I’m a genius, right!? Well, I was, until I wasn’t. It fell and it fell fast. I did a few rebuys with some success, but at the end of the day, I was over my skis. I lost a few hundred grand. I still own most of what I bought, so there is a chance? (Jim Carrey voice) But the reality is I had too much on my plate to do the appropriate diligence.

All long-term crypto bagholders.

What am I doing now and what can you do if you’re in a similar spot? Well, I’m still a believer in crypto, but I’ve taken a more measured approach to support that belief. I have switched to a very nominal weekly buy of Bitcoin and Ethereum. Not enough to significantly impact me financially, but if they do grow in the future then my blended cost should be a bit better. All this to say, I should have had that approach from the start and I would not have gotten hurt. Had I sent a small amount a week and forgotten about it, I’d be down but not dead. And this crypto investor (me) is pretty close to dead. Just ask me if my $51,000 dollar VeeFriend jpeg of a fucking ox is holding its value right now.

Dammit. It’s ok, I’m only crying on the inside.

Second, on the list is real estate. No way in hell I’m losing in this field, right?!? This is my area. This is my shiz. I’m the man. Well, one of my companies grew fast. We flipped premium real estate, high design, historic, or ultra-premium. The projects were long and expensive. The market kept going up and up and for a while, it was better for us to miss our timeline because prices continued to increase. We were being rewarded for missing timelines because of how fast prices were increasing. Regularly a new comparable would hit the market and make us an additional 100k. It was insane. I was so smart.

I had even brought on a partner to “do the work” so I could watch Cocomelon with my two new daughters. It was working. Until it wasn’t. I can remember vividly being in La Jolla in a multi-million dollar home, enjoying the view of the ocean with my family. I was going over some data and emails. I sat up straight.

“Wait, how much did we spend?”

“Wait, how much did the rates go up?

“Wait, this is not going to be fucking good!”

I came home as a man possessed. I called an all-hands-on-deck meeting and was as paranoid as paranoid can be.

“You guys, we’re about to get smoked. Finish these off and sell everything. This is going to get bad.”

The only problem is, you can’t really just unload a house 3/4th of the way through. The bird has to cook. I sold what I could, but I still had about 20 million dollars in flips that we needed to finish. We made a plan, we were over-extended, and we prepared for what was to come. I’m proud of myself, and the team for that. We had a big win close first, around 400k in profit. We earmarked those funds for a few of the dogs that were heading to the pound. I say dogs, but these were actually some of the best houses I ever renovated. But we bought with the anticipation of earlier completions and lower budgets. A formula that would still turn a profit in the hottest market we had ever witnessed, but now, would bite us directly in the ass.

Last week, we sold one off and lost just over 100k. Tomorrow, I’ll close another and lose 120k. I have two additional deals that should lose around 100k combined. So, let’s call it a little over 300k in losses. So, what did I learn, and what can we all learn from this story? Even when you are the expert, you can overexpose yourself. Even when you are the expert, you need to stay rooted in fundamentals and thresholds. Had I put thresholds in place, I would have not bought the 11th, 12th, and 13th projects when the signs were there to stop. I would have not stepped away from the business and taken my eye off the ball. I would have found a way to keep playing the game, at the appropriate level for my acumen.

It’s important to note, I was able to lose this money. Because most of the money in these deals belonged to myself and my partners. Like all investments, it’s critical to only invest what you’re willing to lose. Investing is never a sure thing.

In several of the deals, we had taken on investors outside of the partners running the deal. In our case, these investors were made whole. They didn’t lose a dollar. This is very important to me and my team because we are playing a long game. We would rather lose the money. And this shows the value of relationships and reputation.

Also, for some perspective, I have about 50 friends and colleagues that do what I do here in the valley. All are very smart and relatively good or great at what they do. Not a single one of them is not in this position. ALL OF THEM had deals get jammed. This market shifted so fast, it was not possible to predict and the music was so loud and hot that we all got seduced.

Real estate investors as AZ market prices plummet back to earth.

So now what?

I’m a firm believer in mindset and perspective. This didn’t happen to me, it 100% happened for me. I have cleaned up my expenses. I have tightened my contracts and obligations to partners and consumers. I have niched down on my unfair advantage, and where I’m an expert. And if it’s not that, it’s likely not for me. Saying no really is a superpower. It can feel like saying no to opportunities (Major FOMO), but in reality, you’re saying yes to your priorities. These priorities should be your best opportunities.

I’ll leave you with a few punch list items that are working well for me and I think they can help you too. And I hope to see you at BPND (Blog Post Numero Dos).

- SWAN. Sleep Well at Night Number. This is the amount of cash you always have and never touch. Even if the greatest deal in the world comes around. Even a crypto heater.

- Stay lean. Keep the dollars you earn is just as important as making new ones. My coach said “you don’t know how much the paper clips cost! And that is how I know you are not in touch with your business.” Track everything with brutal intention. You must know how every dollar in the machine moves.

- Create a plan with investment allocations and stick to it. Once I had 6 figures of exposure in crypto that should have been enough. But it never felt that way because I didn’t have a target. It was just like, hey more is better right? Wrong.

- Be amazing at what you do. Keep YOUR hands on the wheel. And be militant with your expectations of what you want, your budgets, and where you spend time.

Last thing, I should mention I still had a fantastic year. Losing money in some businesses sucked, but because I’ve created several verticals I ended up having a good year. A great year? No. But sustainable and good. And that is important. The number one rule of business, especially small business, is to stay in business.

Love y’all.