My 2 Worst Investments EVER

Hey guys, welcome back to the channel! In this video, we're going to be talking about literally my two worst investments ever.

It's kind of funny; sometimes in the YouTube comments, I'll get a comment which is something like, "Oh, Brandon, you're very quick to talk about the investments that do well for you, but you don't talk about the ones that do poorly. You're a fraud, Brandon." So there you go, Frank from Brisbane, this one's for you!

We're gonna delve into my two worst investments ever. But in all seriousness, it is actually quite important to go back over your poor investments and actually have a look at why they broke down, why they didn't work out. Because there are just so many lessons that you can learn from looking at investments you made that just didn't work out. We always have to keep it real.

Okay, no investor goes through their whole investing career just picking winner after winner after winner. There's always gonna be some losers. Investing is just a game of trying to end up 60/40 winners and losers. Maybe if you're really good, 70/30. But the idea here is that you're not going to have a hundred percent success rate. So it's important to go back and actually have a look at why those companies that fail actually did fail, why that investment didn't work out.

When I talk about these two companies, you might find yourself saying, "Well, these don't sound like the Warren Buffett style companies that I usually talk about or that I typically invest in." And you'd be totally right because these companies are some of the companies that I invested in way back when that didn't work out for me, that actually made me focus in and hone my investing strategy, and actually pay attention to how the best of the best do it, and actually made me change my strategy for the better.

So here we go! What were my two worst investments ever? Well, first of all, let's start with my second worst investment. My second worst investment is in an Australian company called Vita Group. Now, I bought in late 2016 at a share price of three dollars and 46 cents, and I got out at one dollar and ten cents. That represents a 68% loss. Ouch, man! This one's really hard to talk about, but essentially... okay, so why was this investment so bad? Why was Vita Group such a terrible investment?

Well, the thing you have to understand about Vita Group as a business is that they basically generated their revenue through one source. Vita Group is known for running the Telstra retail stores. So when you go to the shopping center, and you walk in one of those Telstra stores, it's probably run by Vita. Now, they did a couple of other things as well, but really, most of their revenue was generated through this agreement that they had with Telstra.

Now, the problem here is that Telstra had the right to renegotiate the terms of their arrangement basically at any time to reflect changing market conditions. You can see where this buildup is going. Eventually, what do you know? Telstra actually started struggling as a business. They had to cut their dividend, etc., and they came back around to Vita Group and said, "Hey, we need to renegotiate the terms of our contract so that Telstra could start saving money."

And of course, they were within their rights to do so. Vita Group just had to cop it, and of course, that is their main revenue source. So that sent their share price down like a brick. This situation really taught me the importance—something that Warren and Charlie talk about all the time—of a company having an economic moat.

There's something intrinsic about that business that sets it apart, that protects it from its competitors. Right? As a company with an economic moat, you as the company are setting your own destiny; you're playing the game on your terms. Now, when we're looking at a company like Vita Group, they had the direct opposite of a moat. They weren't playing the game on their own terms; in fact, they were reliant on another company just for Vita Group to be able to make substantial revenues.

So, Vita Group might be doing really well as a business, running these Telstra stores to the best of their abilities, really exceeding, and they could still get absolutely pummeled by Telstra changing the game on them, which of course they did. And of course, we saw that reflected in the share price. That's why the share price fell so much.

So, one really did teach me the importance of the economic moat. I mean, at the end of it, I may as well have just owned Telstra shares. Because at the end of the day, if Telstra released good results, then Vita Group's share price would go up. If Telstra reported poor results, then Vita Group's share price would go down.

So anyway, that was my second worst investment. Definitely taught me the importance of the economic moat. Thank you for teaching me that lesson! And now, let's move on to my worst investment ever. This was in an Australian listed space company called Sky and Space Global.

Now, when I first looked into this company, I was actually really interested, really excited by what they were trying to do as a business. They were basically doing, for all intents and purposes, what SpaceX is now doing with Starlink. So they were building these—or they were trying to build—these nano satellites. Okay, lots of really small satellites that they would shoot up into space, and it would form this grid-like pattern.

What they wanted to do was have a grid around the equatorial band of the Earth, and these satellites would provide telecommunication services—so phone, internet, and so on—to people in the equatorial band of the Earth. That is a region of the Earth that is renowned for not having really great telecommunications infrastructure. A lot of people live in that band without access to telecommunications services.

So I really did like what this company was trying to achieve: building this grid of nano satellites around the equatorial band. Once that was up and running, they were going to try and cover the whole Earth. And all things considered, the cost of the project was actually really quite low. But unfortunately, for this company, they just never got there because the company went bust. They just—or rather, they’re in the process of going bust—they just ran out of money, unfortunately.

Now, the one, I guess the one good thing, I suppose, about me making this investment was that when I went into it, I never thought that I was making a super, you know, low-risk sound investment that I could potentially hold for the next 20 years. I always knew that this was a risky investment. I always called it a speculative investment. So that's one bonus.

But yeah, essentially, the reason that this company failed is because it was just too small. It was a startup company, and they just couldn't get the funding together, and they went bust. They went bust before they could even launch their satellites up into space.

So let's dive into it! What were the real problems with this investment? Well, the number one biggest problem was when I invested in this company, they simply weren't making any money. As I said, they were in start-up mode. So when you looked at their financials, you looked at their operating income: negative. You looked at their operating cash flow: negative. You looked at their owners' earnings: negative. So this company wasn't making any money.

In fact, they were reliant on finding investors to give them money so that they could fund their project to get their satellites up into space, so that that grid, that constellation could start making the money. So this failed investment definitely highlights the importance of only sticking to companies that are making money. If the company is making money, then that dramatically reduces the risk of the investment.

Of course, companies can make money and still turn out to be terrible investments; they can do some horrible things and go bust and all that sort of stuff. But it is much lower risk if your company is already making money than if you're investing into a company that is still, as I said, in start-up mode and still relying on money being given to it to grow to a point where they can then return money back to their shareholders.

So that was one of the key reasons why this investment really didn't turn out, is because they were not in a great position; they just weren't making any money. But there was also a second reason why this investment really turned bad on me, and that was because of the management team.

So, you know, when I talk about stocks on the channel, I talk about the management team having skill and integrity. Right? Now, it was a little bit too early in the piece to get a true judgment on how skillful they were, but with this management team, the integrity just wasn't there.

So the management team, when they released announcements, ASX announcements, they always sounded like salespeople. They were always trying to sell you this company as opposed to just trying to honestly inform the shareholder of exactly what's going on within the company. And looking back, I can totally understand why this was the case. The reason that they were doing this was because they literally were trying to be salespeople because they were trying to find and convince new investors to invest in this company, to buy new shares that they were issuing.

So the management team literally was trying to recruit shareholders; they were selling the company. But even with that said, there is a difference between being a salesperson and just lying to shareholders. Because the thing that I found reading through the ASX announcements is that they would always sugarcoat it. They would always make it seem as though they had the funding in place; they always made it seem as though the constellation of nano satellites was 100% ready to go; it's going to happen, they've got the money for it, which in reality wasn't the case.

In fact, if you have a look, this is one of their announcements from early 2019 that says, "The combined capital raisings of 15 million together with the completion of additional financing blah blah blah blah blah will see the company funded to progress to a revenue-generating position from late 2019." Nope, that never happened!

So this is just a classic case of the management team trying to sugarcoat their announcements to make it seem like all is well and dandy when really, they should be telling us exactly what we need to know as shareholders, which they weren't really doing. No, it being a little bit misleading.

So overall, they were the two big problems with this investment. Firstly, it was a very speculative small company that wasn't making any money, so that's always going to increase the risk. And then the other thing was the management team just wasn't being really open and honest and transparent with us as shareholders.

There was that, and also I was kind of backing the wrong horse as well. Because, as I said, this company is basically doing what SpaceX is now doing with their Starlink constellation that they're sending up, you know, every couple of months or so. So if only I could invest in SpaceX, man, I would love to invest in SpaceX! Unfortunately, that can't happen.

But overall, guys, they are my two worst investments ever! Pretty bad! But I'm certainly glad that these happened early on in my investing career, and I'm very glad that I have a lot of money to invest back then. Thank you! But overall, that’s it! They are my two worst investments.

Now let's do this in the comment section below! I'd love to hear, now that I've revealed my worst investments. I’d love to hear from you guys, so drop that stuff down in the comments. What has been your worst investment ever, and what did you learn? What did you learn from the fact that it completely turned pear-shaped on you? What was the key lesson that you learned from that investment?

Anyway, guys, that is it from me for today! Leave a like on the video if you did enjoy it or if you found it useful. Subscribe to the channel if you haven't done so already! Check out Profit for links in the description if you're interested in learning how to invest Warren Buffett style. You can check out Introduction to Stock Analysis if you'd like to learn more.

But apart from that, guys, that's it from me! Thanks for watching! I'll see you guys next time! [Music]