5 Lessons I Learnt From A Failed Investment 📉
I bought a stock last year, only to exit at 90% loss. Here is what I learnt.
This is going to be a different kind of write-up, the kind that we aren’t used to seeing in investing publications.
It’s going to be open, transparent and sincere—I am the hero of this story and this is about one of my worst investments to date.
I could have not written about this, nobody would ask why.
What I told myself?
Fuck it! This is pure value, people need to know.
Goal? To self-reflect, to learn from mistakes, to meditate not to make the same mistakes.
Let me be straight with this—all investors make mistakes.
Let me go a step further—all investors SHOULD make mistakes.
If you aren’t making any mistakes, this means one thing:
You are investing in T-bills.
You are not taking enough risk to outperform the market. That's simple.
All great investors make mistakes.
In 2022 Berkshire Hathaway Shareholder Letter, Buffett acknowledges this:
Indeed, we know he had many big mistakes— ConocoPhilips, Dexter Shoes, USAir, Salomon Brothers, Tesco, Energy Future Holdings and many small ones we don’t even know.
Nobody is immune.
Charlie Munger made mistakes with Alibaba and Belridge Oil, Stanley Druckenmiller bought tech stocks at the peak of the dotcom bubble and lost $3 billion in a freaking day!
What distinguishes these people from the brazen hedge funds managers and gurus on Substack is that they take responsibility for their mistakes.
Warren Buffett thinks he owes his letters to shareholders, sees them as partners and explains to them why he was mistaken and takes responsibility.
This is a rare breed much different from today’s managers and writers.
They are never wrong. What they do is communicate with the management and base their assumptions on their guidance.
When the management changes signals or something unexpected happens, they change their assumptions and positions. They let you know this by a trade alert.
Yet, by the time you get this trade alert, everything is already priced in and there is nothing to gain from this. In the final account, you make no money.
Are they investors?—I say they are messengers.
Investor’s job is finding something that, for some reason, will come out unscathed of all those unexpected changes. This is the challenge. This is why mistakes are good.
From Buffett’s 2024 Shareholder Letter, he doesn’t just admit mistakes, he also criticizes others for never talking about them.
This is why I am taking Buffett’s way and writing openly and transparently about a mistake, hoping that everybody will learn something!
Set Up
It was mid-2024 and your manager, in this case me, felt in form, very confident.
In the last two years, I had made some good decisions with a spectacular batting average that was almost guaranteed not to sustain.
Bought American-Express and made some handsome money.
I had bought TSMC at $80.
Had bought SOFI at $5 while Wall-Street thought it was going to 0. I was up three times.
I had doubled my money on Hims&Hers position.
I had bought a large chunk of Carrol Restaurant Group, the largest Burger-King franchisee in the US, just out of Covid, seeing the turnaround underway. The company got acquired by Burger-King, doubling my money in months.
I had doubled my money on Matson stock in 2022, while the market dipped.
I had made 50% on Technoglass position in just a few months from November 2023 to April 2024.
These are just a few very nice bets that I made in that period.
They had made me overconfident.
I thought I was keeping myself off from hubris, thinking that knowing I could succumb to overconfidence would prevent it.
I was being stupid as a brick!
Confirmation bias sneaks in.. It was also working to confirm that I was keeping hubris out of the door. This is the trick with it. Even when you are aware of it, confirmation bias works to confirm that you aren’t giving into it. It’s false.
In that spirit, I found something really interesting…
The company had grown its quarterly revenues 10x in a year—something should be off…
I don’t get too excited too easily. There are many companies like this, you can see a similar performance literally in all turnarounds. And I hardly invest in turnarounds, Carrol’s was an exception because the fast food business was predictable.
I dived deep into the business and saw that they weren’t a turnaround, they pivoted to a completely new business and it seemed working!
The company had a very interesting past.
It was listed as Black Ridge Oil And Gas Company in the over the counter market. In 2020, Claudia and Ira Goldfarb basically acquired the control of the company, contributing $2.5 million in cash.
After the acquisition, they changed its name to Sustain:US and then they changed it again to SowGood. They made themselves CEO and President.
They didn’t do this for nothing, they had a plan…
They had been the CEO and President of the Prairie Dog Pet Products, freeze-dried pet food and treat manufacturing company.
Their idea was simple—dogs liked freeze dried candies, why wouldn’t humans like it too?
They had acquired the Black Ridge Oil as just a vehicle to execute their project and use its previous net operating loss carryover of approximately $26.8 million to offset future taxable income.
That also made sense to me. If they succeeded, they wouldn’t have to pay taxes for a couple years—earnings would literally skyrocket!
Now I am attracted, I slowly start to like what I see, and even more dangerously, I start to think many people don’t even see the grand scheme here. Wow!
They first went to market with freeze dried fruits, vegetables and ready to blend smoothies. That failed, though not totally!
They got some initial traction, enough to validate the demand, but the product lacked virality. It didn’t sell that much. They knew they just needed to level up the product.
Thus, their blockbuster product came up—freeze dried candies!
It tasted nice, it was crunchy and it had the virality!
Unlike frozen vegetables and fruits, they were fun. People started to make videos trying their candies and they aggressively banked on this channel.
Sales exploded!
They were overwhelmed by demand, had leased another facility in Dallas, and were rapidly adding new freezers to ramp up the production.
I thought “they have a way to go” and started to build up my thesis.
Investment Thesis
I want my investments to have three core properties:
Defensible moat.
Growth prospects.
Attractive valuation.
This is a recipe for stellar results:
Moat allows the company to exploit its growth prospects, the business will post big earnings surprises as it grows, this will lead to revisions in analyst estimates, followed by multiple expansion.
If you bought at an attractive price, you’ll be set for above average results for many decades.
In my thesis, it was easy to see the last two. There were ample growth opportunities as the category was new and no legacy player got in yet and it was obviously a nice valuation at 16 times earnings.
My main question was the moat…
I run a barbell portfolio and I set a high threshold for moat in my foundational stocks but I can accept a weaker one in my growth positions as fast growth necessarily comes with more experimentation, attracts competition and thus exposes you to a higher risk.
I just want them to have a fairly good competitive position and I try to offset the incremental risk by higher diversification among growth positions with smaller position sizes.
I knew that it didn’t have a lasting and defensible moat as it was a commodity product after all. My question was whether it could stay competitive.
I looked at its distribution and saw that it was already in most big retailers, except Walmart, and there were rumors that it would enter Walmart too.
On top of that, I looked at the market size— just $1.3 billion for whole freeze dried snacks!
If you take just candies, it’s a way smaller market.
This led me to discounting potential competition from big consumer goods brands.
I thought “there is no reason for big players to start aggressively competing in this market as it’s too small for them to move the needle. Even if they do, SowGood will still thrive even if it can just end up with 10% of the market.”
At the time, it was reasonable, from the hindsight IT’S A BIG FAT FU*KING CONFIRMATION BIAS!!!
And just like that, I took a position, 1% of my portfolio.
Aftermath
The first shock came in Q3 2024—sales just collapsed, together with the stock price.
It didn’t collapse for business reasons or competition, it collapsed because of an operational mistake.
They shipped their freeze dried products without any heat containment in the middle of the summer heat. All shipments melted…
When retailers saw the melted products, they immediately ceased orders and turned to alternative suppliers. —> Loss of shelf space.
Some retailers did even worse.. They put the melted products on shelves. What do you think customers said when they came home, opened their packages and saw the melted products?
“I am never buying this shitty brand again.”
This led to further cancellation and reduction of orders.
At the chart, it looked like the business got hit by a plane, look at that collapse!
Yet, I didn’t sell immediately. That sudden collapse actually encouraged me rather than discourage.
I thought it was a blunder that could be fixed and when fixed sales would recover so fast, together with the stock price, making it an easy money.
I was speculating, but at least I knew I was speculating so I averaged down only to take it up to 1% of my portfolio again. No more. That was reasonable.
Yet, I couldn’t conceive two things:
The shelf space it lost was already taken by other brands that actually delivered good products. Why would retailers give up something selling and give you another shot? They wouldn’t.
Big brands saw the weakness in shelves as a chance to enter and strongarm retailers by threatening them to withdraw their best selling products if they don’t get shelf space.
Suddenly, it had become near impossible for SowGood to reclaim the shelf space.
As a result, business deteriorated even further in Q4, sales dropped to just $1.4 million.
Stock dropped to near worthless now..
What a story! From $16 million a quarter to $1.5 million a quarter in just 120 days..
The management accepted the competition from big brands and lost-shelf space in the earnings call. I also decided to exit.
I might have stayed as even total capital loss in that position wouldn’t really affect me or my performance as it was just 1% but I chose to exit and reflect on my mistake.
I told myself—this is a freaking loser, take it, swallow it and think about it.
Lessons Learned
Let’s start with the real lessons about the things that I did poorly in this decision.
1) Competitive Advantage Is A Must, Not An Option!
This is the key, it all comes back to this. This is like the one ring to rule them all…
If the business has a competitive advantage, and if it’s a durable one, you will end up with a nice result even if your initial price was a high one and growth opportunities looked grim initially.
Just take a look at this…
And imagine you were an Amazon investor in 2014…
You would think that e-commerce was already saturated and the other bets of the company weren’t getting much momentum. You would assume a lower growth rate for the next 10 years than it actually happened.
Yet, it happened because Amazon had an amazing moat in its core business and it was able to build other businesses over time. Even back in 2014, you wouldn’t think anybody could come up and eat Amazon’s lunch in e-commerce.
That power of distribution, network effects and cash flowing in allowed them to build other businesses. Now they have four businesses generating +$50 billion revenue a year.
Even though growth prospects looked grim and it was overvalued, an investor who bought it back in 2014 would end up with hell of a result!
That wasn’t something I could ever say for SowGood.
It was so easy for it to lose sales and lose shelf space but I thought it wouldn’t happen.
It’s acceptable to lower your standards of competitive advantage for high growth names, but it had none.
I of course knew this, but overconfidence got me. I shouldn’t have given in.
2) Lowest it can go is always zero.
It had increased revenue 10x and it was trading at 16 times earnings.
“How low could it go?”
I thought it would at least trade at a commodity P/E ratio, which was 11 at the time, even if the growth stalls. I could then exit with a minimal loss.
I thought my downside was very limited…
That was actually a reasonable assumption… for a company that will make money.
I was very quick to conclude that it had carved out a permanent place for itself in its niche. I underestimated the company specific risk.
3) Stay away from commodity businesses.
Commodity business is like commodity trading…
There is nothing you can rely on to predict its future performance.
A company with better packaging can kill it, a company with lower prices can kill it, people can wake up tomorrow and decide they don’t like the product anymore…
That business was open to all those risks…
Compare it to companies with real competitive advantage and you’ll see the difference.
People may stop buying Nike and start buying Adidas tomorrow, they’ll still go to Amazon marketplace.
There is nothing else that tastes exactly like Coca-Cola. If you want Coca-Cola, you have to buy it from Coca-Cola.
If you want Hershey’s, you have to buy it from Hershey’s.
Freeze dried candy is definitely not such a product.
I don’t even know people will keep eating it three years from now. I have travelled to 3 European countries in the last two months and I definitely saw no freeze dried candy in any supermarket. People don’t even know it outside the US.
4) Differentiate “execution risk” from “business risk.”
I gave the company a pass on competition because I saw a long runway.
What killed the investment, though, wasn’t strategy—it was the banal, boots‑on‑the‑ground task of shipping candy through 40 °C Texas asphalt.
A checklist question that literally asks “What would happen if the COO simply fouls up day‑to‑day execution?” forces you to size that separate risk, price it in, and maybe demand an even bigger margin of safety.
Think about a recent example, CrowdStrike.
The company experienced an outage, causing the collapse of many IT systems worldwide last summer. Stock got hammered 20%.
Current stock price? Back to $370 levels.
This is because, once set up, it’s hard and expensive to change your cybersecurity provider. It’s sticky. You would rather demand them to fix the service than dumping it.
If I asked this question for SowGood, I would get a different answer—customers would just pick another candy off the shelf…
I should have asked it.
5) Beware the single‑product company
They are easy to build, they are easy to kill.
Even outside commodities, mono‑line businesses amplify volatility— one quality control error, one regulatory snag, or one TikTok trend reversal and revenue evaporates.
Rule of thumb: If the entire revenue hinges on one product, let it go…
Last But Not Least: Beware “confirmation‑bias squared.”
The most treacherous form of confirmation bias isn’t merely hunting for facts that agree with the thesis—it is hunting for facts that prove you’re immune to confirmation bias in the first place.
I congratulated myself for “watching out for hubris,” then promptly treated that self‑awareness as a proof I was safe.
That meta‑bias let every supportive data‑point sail through the gate uninspected while any disconfirming clue was graded “not material.”
I am yet to know a 100% effective method to fight self-confirmation, I just know most investment mistakes go back to it.
I’ll just insert Charlie Munger’s quote here and I hope it’ll urge everybody to employ a stronger vigilance to avoid it…
Conclusion
So, what’s the punch‑line after this self‑inflicted face‑plant?
It’s simple. The market hands you tuition bills; whether you pay once or keep getting invoiced is entirely up to you.
I torched 1 % of my net worth on a melt‑in‑the‑mail candy company because I let a cute narrative bulldoze my process, and then let “look‑how‑self‑aware‑I‑am” confirmation bias talk me into it.
That single paragraph above is worth more to my future returns than a thousand tidy case studies of things I did right—because success is a lousy teacher, while failure shouts in surround sound.
Will this lesson keep me from screwing up again? Hell no. But it will make the next mistake smaller, faster, and—most importantly—different. That’s how compounding works in the real world—not just stacking capital, but also stacking judgment.
If sharing my bruise keeps even one of you from grabbing the next shiny, moat‑less toy, then this write‑up was worth twice what it cost me. I hope it does!
Thanks for sharing. This type of self reflection is invaluable. I’ve learned the most from my failures not my successes so reading this was very helpful. Kudos for sharing your fallibility!
Thanks for sharing this, good to review what doesn't work as much as what does.