PP 55 | Investor Mistakes

 

When you are trying to grow a business or investing in one, it’s no secret that you will encounter struggles or make mistakes along the way. On today’s podcast, Tony Frischknecht shares six major mistakes he’s made as an investor. A simple mistake can cost a lot, especially when you’re investing in something seriously. Remember these simple guidelines to help you keep yourself in check when you’re looking at future deals.

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Six Mistakes I Have Made As An Investor

Diversifying Into Too Many Deals

I hope everybody is out there solving some of their problems. I know that each of us is always struggling and making mistakes as they grow their business or invest. I want to share with you some of the big mistakes that I’ve made in my investing time. I started investing in myself and my businesses. I started taking investment more seriously, not only on a cannabis level but as well as on the real estate level. I’ve always loved real estate. If you look back in my story, that’s where I started my own business. At that point, it got me into learning investing in myself, and then taking it to a different level and investing in my experience of cannabis. I’m going to share with you six dumb mistakes that I’ve made as an investor. The first one is it’s interesting because I’m going to talk about this one. I don’t think you’re going to hear about this often. It’s not to diversify into too many deals. We hear so much around investing, diversify, and this makes sense in some areas. One of the areas I believe is if you’re trying to maintain and you’re not looking for huge wins because you don’t want the risk. That’s what this comes down to.

However, some of the biggest wins that I’ve seen in some of the other investors that I follow are focusing on a few investments. It’s much easier to spend your time on a couple of investments as opposed to being scattered in several different ones and knowing what you’re best at investing in. If you’re honing in on certain investments, you’re able to put the majority of your capital in 1 or 2 deals, depending on how much money you have. You’re going to take your time and do your due diligence. You’re going to spend that time watching and focusing on those 1 or 2 investments and investing more money in those single investments, which in turn gives you a larger return at the end of the day. I know there are a lot of people who say, “I hope to get a big win from 1 out of 10.” Some people don’t have that much money. If you’ve got $10,000 and you throw $1,000 at each deal, even if it doubles, it’s only $2,000. That’s what I mean by if you diversify over too many deals.

Investing In What You Don’t Know About

The second mistake I’ve made and I grazed upon this is to invest in things that you know about. This is easier said than done because we as investors, we can get caught up in, “That’s a great deal.” However, they’re not all great deals. You can get blind to them easily if you’re not paying attention. What do you know? That’s not saying that just because you don’t know about cannabis, you can invest in it. However, there was some training and some learning that needs to happen. You become an informed investor. It’s something that’s learned over years and years. You make mistakes and you learn from them. If you have a passion for any particular area like I have a passion for real estate, I spend some quite a bit of time watching the market there and seeing how sales are happening in the area I’m in and also appreciation. I’m constantly learning, even if I’m not buying it.

I’m also doing the same with cannabis. I’m being caught up in reading articles and understanding where people’s mindsets are going in these companies. When I see an opportunity, I start investigating deeper. If it’s good, of course, I invest some of my capital in there. Taking and learning what you’re going to invest in. I have many friends and people that are around me that are giving me ideas on what I should invest in. Why should I invest in it? However, I steer clear unless I know something about it. I tend to try to stick to my two avenues, which is cannabis and real estate. If you are a seasoned investor, and there are many out there, you probably have some advisors that are there.

Become an informed investor and learn from your mistakes. Click To Tweet

Throwing Good Money After Bad

When you’re starting out, it’s not something generally most people can afford, but maybe you go on partnerships on deals where you’re not paying somebody to advise you, but you’re learning with the other person because they have more knowledge. That’s a way to get into investing in some stuff that you’re not an expert in. The third thing that I’ve done and I know hundreds of thousands of investors out there have done. That’s throwing good money after bad. This is a tough one because you saw the opportunity. You fell in love with it and all of a sudden, you need some more money. Let’s say it needs another $10,000 or another $20,000 because they got to get this going or they got to get that going. If this isn’t going to pay off soon, it’s tough for me as an investor to put this money in. It’s not what I signed up for, especially if you haven’t received any dividends of any kind or any quarterly payments, some payback at this time if you’re a couple of years in on your investment.

There are a lot of investors out there in cannabis that thought they were going to be investing for a couple of years. It’s already turned into five years. You need to assess what your loss is. You’ve got $10,000 and if you don’t put in another $10,000, you’re going to lose that $10,000. How do you feel about that? You feel sick and I don’t blame you, but throwing good money after bad is a bad idea. You can find another investment and put your money into that as opposed to trying to save this one, that’s probably dying on the buying. As I said, you have to assess what your loss is going to be. Some are bigger than others. Taking your mental state and putting that positive in investing in a new deal or investing into maybe a greater investment into a deal you already have that’s starting to become fruitful is a much better way to do it. Take the loss, move on, and understand it’s all a part of the game.

Not Taking The Time To Spend With The Executive Team

Number four, not taking the time to spend with owners or the executive team. First of all, you need to make sure the owners or executives have a similar vision to not only what they give you in their business plan, but particularly in which direction they’re going. Right then, you’ll be able to tell, “These guys are not heading the way I want to go.” Why would you invest? Their vision. That’s why they’re huge when people are trying to sell you their ideas. They may put it down on paper and by the time you talk to the owner, he’s already changed his mind maybe a couple of times. Look out for that. The team dynamic. If you’re in a company that’s got a couple, 3 or 4 years under their belt, they have an executive team. You need to see the dynamics of how they work with each other.

When I say spend some time, you want to spend some time with each one of them separately. You might want to go out to dinner with a group as a whole and divide it up into several days if you’re interested in investing in this company. You will get some different information from each exec, potentially about the business itself. There are different views on how they see the business because if they’re not aligned, it makes it a large hurdle to get over. As you start seeing the growth, it can stifle the growth if not everybody’s on the same page, but if there are some good intentions by each member to push the other person further, you can see some exponential growth, but they still have to have that same forward direction.

PP 55 | Investor Mistakes

Investor Mistakes: Throwing good money after bad is a bad idea. Take the loss, move on, and understand it’s all part of the game.

 

The other thing is getting background checks on all the individuals. When I see that, what I recommend people do is find somebody online or contact a private investigator that has connections with a bunch of databases and pull a background check on these people. Criminal and also see if they have any litigation actions that are placed. That can tell you a lot about how they do business. I had to learn that one pretty hard a couple of times. I highly recommend you do this. That also comes from the amount of people that are coming into this industry. As I mention in many other episodes, there is some backup planning. There are many walks of life that come into cannabis. There are also some criminal minds that are all around us in this industry. It’d be nice for you to catch that earlier than later, which can be devastating to your business. That’s why I stress checking these out.

Failing To Prepare An Exit Strategy

Number five, this is a big one and I made this mistake. It’s like any other mistake. Before I realized that it was such a big issue, but that was my exit strategy. What do you mean by exit strategy? I’m sure some of you are thinking out there, “You sell when you get a good offer.” What’s a good offer for you? See, if somebody came to you and said, “I want to buy your business for $1 million,” have you asked yourself what you would do? As entrepreneurs and investors, especially the newer ones, we think that this is the dream to happen. Our not being prepared for this and not mentally understanding what this means is a big thing when it’s time to cash out. This time is going to be unique to everybody’s situation. You’re going to have many mixed emotions. Greed is a huge one. “Can I get more money for this? It’s worth more than this.” Timing. Is this business going to grow larger? Is it going to go down? What’s going to happen? What’s it going to cost you if you sell out?

I had a large investment in real estate that I was able to cash out on back in February of 2020. One of the great things about it is it was a passive investment for me. I did not have a say in whether we cashed on the investment or not. It was run by the management group. However, I had all these things in place prior to my investment. Everything I’m sharing with you is exactly from my experience. One thing that I don’t think is easy to teach is, when it is enough for you? You can’t talk to too many people about this, unfortunately. It’s your personal preference. I’ve had a few deals that when I exited, I was like, “What am I going to do now? This was everything I had been working on.” That is fear. I want to tell you that if you worked hard for anything and you’ve worked for 10, 15 years, I promise you, you’re smart enough to find the next thing.

The fear of losing out on a better deal or more money, that’s real. However, what can you do with some of that money to reinvest later? Can you make a less risky investment, something that maybe will pay out sooner and it’s not as challenging? These are all things that come along after an exit strategy. “Nobody shared it with me, though.” I’m sharing it with you. I love to talk about these because it’s the big winner, the journey to success. We talk about challenges in our business, but we hardly ever talk about what happens after? There is an after, but few of us see it. I’ve seen things like greed standing in the way too at a point where when you should have sold and you didn’t, you lost your entire investment or business. Hopefully, you’re not to beat down by the loss and you’re able to start over again. If you guys are out there and you have felt that, you know the answer to getting to it much faster because you’ve learned at this point. If you haven’t, I want to say, I’m sorry because it’s going to hurt as bad, if not worse because you knew it was coming. Try to avoid that if you can.

It's simple to blow everything you made, and losses are a lot harder to get back. Click To Tweet

Getting Back Into Investing After A Win

The sixth and final dumb mistake that I’ve made, it’s not going to be the last, I’ll tell you that. Getting back into a business or getting back into investing right after a win is one of the most terrible ideas you have. I’ve recognized this even more. There are deals that I invested in 3, 4 or 5 years ago that I’ve cashed out on. Lo and behold, the investor group is like, “If you want to reinvest your money into this deal over here, they incentivize you to roll your money back into something else.” It’s an evil way of taking advantage of your emotions at the time. You’ve got a huge high. You scored. You’re like, “Boom, I killed it. I want to do it again.” Everybody wants to do it again. It’s no different than anybody else. “I can’t lose.” You feel smart. You feel like you’ve done it.

There’s an investor that I read a book a long time ago and the writer’s name is Jim Rogers. I read his book about investing all over the world. It’s Investment Biker. If you haven’t read it, it’s extremely entertaining. Jim travels all over the world on a BMW motorcycle with him. It’s the love of his life at the time. He goes through the entire world, traveling on a bike. He’s got all these adventures and he’s watching the economics. Fortunately, I read this book early in my investing career. One of the things he had said is, “Once you have a successful victory when investing, do anything possible not to think about investing or another prospect and deal. Separate yourself. Go on vacation or go do something else. Stay far away until this high wears off.”

You will unfortunately, go into your next situation unguarded and unstoppable. You got a big ego and you get cocky. It’s simple to blow everything you made and losses are a lot harder to get back. Say you lose $10,000, the money you paid tax on. Depending on your tax bracket, it’s anywhere from 25% to 37%, tack that right on top of your $10,000. When you thought you had a $10,000 loss, you’re more like $12,500 to $13,700. It’s a much bigger loss when you look at it that way. I know I hate taxes too, but that’s a part of it as well. There are many different ways that you can spread out your tax liabilities over and they get paid somewhere. Keep that in mind.

PP 55 | Investor Mistakes

Investment Biker: Around the World with Jim Rogers

These are not all of the mistakes that I’ve made, but these are some major ones. I want you to think about these when you’re looking at future deals. They’re simple guidelines to keeping yourself in check. It’s easy to forget about these simple mistakes that cost you to learn you pay for them. However, this is a part of the process, the failure. You fail. I have failed hundreds and hundreds of times. Hell, I’m failing somewhere in this show but I’m also learning a great deal about you out there and about what I can bring to save you some money and headaches, and simply taking these six steps and writing them down as a reminder.

This is what I want to look out for. We’ll open up on each deal that you look at or each company you invest in from a high level. This will start giving and prompting you to all the questions to ask these companies. I promise you, it helps. Whether you can put them in a Google Doc, write them down on a note pad, put them on a sticky note so you can see them next to your computer, in your car, somewhere in front of you as a reminder on what you’re doing as an investor or becoming an investor. It will save you a headache. I want to create more things like this to solve some of these problems that are out there.

I’d like to offer you readers out there the opportunity to reach out to me. If there are some mistakes that you’re trying to avoid, let me know about them. I can almost promise you I’ve already been in it. I’m happy to share it with you. Please feel free to reach out to me, Tony@PlantProblem.com. You’re also welcome to contact me through PlantProblem.com. You can go to the author’s area. It’ll show you a place where you can send me your question if you like. Those are two great spots. It’s simple. I’ll see if I can answer them for you. Potentially, we could discuss it on one of the programs too. If you’ve got a lot of things to talk about, I would love to do that with you. Let’s think about it. Take me up on it and I’ll make time, do something fun. We’ll both learn a little bit at the same time. I hope you have a fantastic day and hopefully, I solved a few of your problems or potentially saved you from making some mistakes that I have. Thanks so much for reading. I look forward to having you back at the show.

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