February 19, 2019
What Bad Blood Can Teach Us About Evaluating Investment Opportunities
Please read important disclosures HERE.
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February 19, 2019
Please read important disclosures HERE.
You may be presented with a hot new investment opportunity at some point in your life. Perhaps you have a friend with a great new business idea, a family member who has invented a new technology, or a business colleague who wants to flip a real estate property with you. You’re committed to a long-term and diversified investment plan but this opportunity is just too exciting to pass up. Thoughts of being an early investor in Amazon or Google run through your head. You envision slapping high fives with your friends at a cocktail party to celebrate your success.
Before you pull out your checkbook, you might want to consider reading John Carreyrou’s fascinating book Bad Blood: Secrets and Lies in a Silicon Valley Startup that details the rise and fall of Theranos, a now defunct private health technology company. Theranos, and its founder, Elizabeth Holmes, promised to revolutionize the medical industry with a machine that would make blood testing faster and easier. Backed by huge investors and a powerful board that included former Secretary of State George Schultz, Theranos sold shares to private investors that valued the company at $9 billion. When it became clear that the technology didn’t work and that Holmes had misled investors, the company collapsed, and Holmes was indicted on federal wire charges.
Warning Signs
How did these investors get it so wrong and how can you prevent something like this from happening to you? Needless to say, there were likely many smart investors in Theranos who routinely evaluate business opportunities. Many of them likely performed extensive due diligence on the company before investing. Nonetheless, many were still fooled. Were there any warning signs that could have prevented them from making a bad investment? The following are a few signs that may also be applicable to other investment opportunities:
A Mental Checklist
Although our firm believes strongly in a long-term, diversified, and prudent investment approach, our clients are sometimes presented with outside opportunities that they must consider. Here are a few suggestions to consider when evaluating these opportunities:
Hot investment opportunities can be invigorating to think about. However, making a good decision requires a careful and thoughtful approach. Please consider B|O|S as part of your team as you evaluate these types of decisions. We may not necessarily have direct expertise in the investment you are considering but we may be able to highlight some things for you to consider as well as evaluate how the investment might impact your overall financial plan.
Filed under: Investing