How I Came Back From My Three Biggest Financial Screw-Ups

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Indexes
  1. How I Recovered
  2. How I Recovered
  3. How I Recovered

1. My Business Venture Failed After 10 Years’ Work

In 2014, the Harvard Business Review rightfully sounded the alarm on entrepreneurship porn.

I wish I’d read this sooner because I squandered nearly a decade of my life on an entrepreneurial venture with nothing to show for it but a 10-year gap in my resume and mediocre finances.

Some years back, a friend and I decided to launch our own investment fund after we’d got bored of our jobs. We reasoned at the time that we could do it because we were confident in our ability to generate good investment ideas and because we knew enough people who had sufficient money to invest in our fund.

We believed we could raise enough funds within our own families to launch the investment fund. We felt we had enough financial resources to start investing with that initial seed capital and our savings. We’d then scale up our fund once we had enough track record to attract outside investment.

Everything sounded good on paper. However, we had made two critical errors in our decision to proceed with the idea.

The first oversight was that there were few private investment funds in our country. There were huge investment funds run by massive corporations, which we dismissed as too slow and bureaucratic. We naively reasoned that we could beat them at the game by being nimbler at decision-making.

Secondly, we believed we had the necessary training and discipline to beat the market. The investment funds in our country, we thought, were staffed by risk-averse individuals more concerned with their bonuses than with earning outsized returns for their investors.

We grossly underestimated the industry’s challenging economics. There are very few hedge funds in Malaysia because the market simply isn’t ready for it. There aren’t enough people with the money to invest in a hedge fund, and those who do have the money weren’t willing to risk it on us.

This meant we’d been wasting our time for years. We’d spent a lot of time and money developing a research infrastructure to generate actionable investment ideas.

We were able to generate some interest in our investment ideas, but when it came down to it, no one was willing to commit any money into our fund.

How I Recovered

This failed business cost me close to a quarter-million dollars. Some of this money was spent on direct expenses that I will never get back, such as travelling to Hong Kong for specialist investment training courses or subscribing to a Bloomberg Terminal.

The remainder was wasted potential — money I could have earned by working on something financially productive.

Despite this huge expense, I never seriously dipped into my savings. This is because I had a writing side hustle to cover my living expenses and my share of the business expenses.

This side hustle turned out to be my lifeline. Blowing a $250,000 hole in my personal finances if I didn’t have a side hustle would have completely depleted my personal savings and forced me to start from scratch.

However, because I had enough writing work to cover all of my expenses, I went from “potentially broke” to only “failing to grow my personal wealth.”

That’s not ideal, but it’s a situation that doesn’t feel like it’s impossible to recover from.

2. I Wasted Too Much Time on a Side Hustle With No Growth Potential

It feels strange to mention my writing side hustle as a financial blunder so soon after crediting it with saving my ass after my failed entrepreneurial venture.

However, some side hustles outlive their usefulness after a certain point. When I no longer needed to support an entrepreneurial venture, the limitations of my previous writing side hustle became clear.

I made most of my money as an academic ghostwriter in this period. This meant that I was rewriting dissertations and papers for people whose writing skills did not match their academic prowess.

When I was trying to fund my failing startup, the sheer volume of writing work was extremely useful. I’d write for three hours a day, collect my $150, and then get back to work on my startup.

The money was helpful in getting me out of a bind. But academic ghostwriting is not a scalable business. The sheer variety of the work, and the specialised knowledge required to complete it, made each project feel like a fresh start.

Turning the academic ghostwriting service into a product to scale it up is practically impossible. For instance, what works for finance academics may be wholly unsuitable for academics in a different discipline.

Academic ghostwriting also has a somewhat shady reputation. Academic careers are built on the scholar’s knowledge, skills, and reputation. As a result, outsourcing work to an academic ghostwriter carries a stigma.

After all, which academic wants to say

“Hey, I found this guy on the Internet who agreed to write my dissertation for me. He’s great. Hire him!”

Thanks to this mark of shame, I’ve never been able to obtain any endorsements for my work. As a result, I don’t have an academic ghostwriting “brand.”

How I Recovered

I’ve taken the first and most important step: I’ve recognised the inherent limitations of the academic ghostwriting business and exited.

It’s been nearly two years since I quit academic ghostwriting, and despite my initial concerns, my income hasn’t suffered.

Instead of academic ghostwriting, I’ve shifted my focus to the remainder of my online writing work. I’ve also moved away from academic ghostwriting and toward writing for a broader audience.

The advantage of this model is I won’t have to research new topics from scratch every time, write customised pieces for clients, and never receive an endorsement in return because the client is embarrassed to admit that they used my services.

3. I Lost a Significant Proportion of My Capital Trading on a Meme Stock

I feel silly admitting this given that I have a Masters degree in finance and years of investment experience. I should have known better (and I do).

But knowing is one thing: having the emotional fortitude to stick to one’s investing plan is quite another.

I lost about 5% of my capital trading in GameStop stock in 2021. Maybe it was the pandemic boredom that made me feel like I’d be missing out if I didn’t participate, but I went into GameStop at the worst possible time.

I knew I’d succumb to the temptation to enter more risky trading positions than I should, so I set strict risk limits for myself. I promised myself that I would not put more than 2.5% of my capital at risk in any single trading position.

I blew through my risk limits as I became more emotionally involved in my trade, relentlessly refreshing r/wallstreetbets for the latest updates.

When I was up about 20% on my trade, I told myself that I could relax my self-imposed limit and invest up to 5% of my capital in that trade. Later, my position improved, so I loosened the restriction further, to 10% of my capital.

Naturally, I bought at the worst possible time. Soon after, the stock price plummeted, and I decided I couldn’t handle the stress any longer and exited the position entirely.

All told, I lost 50% of the money I put into GameStop, which reinforced to me why stock market speculation is a hugely dangerous activity if one’s goal is to preserve one’s wealth.

How I Recovered

I ignored my risk management rules but setting that “2.5% limit” wasn’t completely pointless. Setting the limit reinforced the importance of enforcing strict risk management discipline in my mind.

When I exceeded my limits, my instincts told me I took on far more risk than I should. My mouth was dry, my hands became clammy. Everything in my body told me I was making a bad decision.

So, when the trade turned south, I didn’t need much convincing to abandon my position entirely. I sold everything, accepted that I’d just lost 5% of my capital on an untimely trade, and exited.

By normalising the concept of strict risk discipline, I limited my loss to 5% of capital. I can’t imagine how I’d feel if I went YOLO, invested all of my money in the GameStop trade, and let it ride.

Most likely, I’d have lost half of my capital and would have had to work for many more years just to get back to where I was before that bad decision.

As it happens, I’ve recovered from that loss thanks to gains in my other positions.