The most important part of growth is being able to recognize your mistake, and more so, be able to understand WHY you made that mistake. I am thankful to be able to share this mistake at a young age, and with minimal monetary losses to show for it. Still, it opened my eyes and taught me more than any class ever has.
Imagine this: You’re a hotshot high school student with part-time job money that you want to invest. Where do you go? Well, the right choice would be to stick it in an index fund until you actually know what you’re doing. Maybe do some paper trading in individual stocks before throwing out the big bucks. But alas, I did neither of those things. I believed that if I did enough homework on a company I believed in that it had to work out, and that most people just lacked the courage to stick with a winning horse.
I had not considered that even diligent research could lead me to a losing horse.
The company was Weedmd. I really liked how frugal they were with equity financing (my one sided stance on debt vs. equity financing has since changed), and I was seriously impressed with the fact that they were able to secure a loan from BMO for only 8% interest. This was very unusual from companies of their size in the industry. I also took a liking to the CEO at the time, Kieth Merker. He had a habit of being honest, maybe too honest, about the state of the business and the industry. He also liked to set expectations low, and usually came with earnings surprises that ignited stock performance. I had even gotten to directly interact with him on a Reddit AMA with a question regarding their latest convertible debentures.
The problem started in the Q3 2019 conference call when they announced a merger (which turned out to be a reverse takeover) with Starseed. This company claimed that they were an insurance based model that no one had ever seen. That this would grow to be the model used my companies for pain relief as opposed to opiates all over the world. What a disappointment that really became. In reality, the Starseed merger was a financing in disguise, and a desperate one at that. The company seemed to be looted between the assets that were previously reported prior to the merger, and the assets received by Weedmd. On top of this awful, dilutive deal, they also missed outdoor grow expectations by well over 50%. This was a huge blow to 1. Their top line. 2. My trust in management. And 3. Their entire business model. At this point, I should’ve sold. I had already recognized that this was not the company that I had envisioned. However, I decided to give them more time.
That decision was very costly.
When it was all said and done and Keith Merker had been replaced by a labor union’s puppet, I had lost nearly 50% of my investment. Even now, I hold a single share in the company to remind me of this abhorrent error.
But not all was lost. I gained a substantial amount of knowledge through that venture that I plan to share in coming posts:
1. Industry Performance > Macro Conditions > Company Performance (in terms of importance)
2. Emotional investment in a stock does not make you more money.
3. Putting all your eggs in one basket isn’t investing. It’s gambling.
Those are very brief overviews of the lessons I have learned, and quite a short list compared to the number of lessons I have learned post-Weedmd. I will be elaborating on these. I’ll also be happy to share the success that I have had since learning these lessons in future posts.
Until next time.
The only real mistake is one in which we learn nothing.
John Powell
The Young Investor 