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Well, I wouldn't call it my worst investment, but probably the most disastrous. I don't know. In short, my partner Rob Goldstein, who joined me in 1989, always jokes: if we had worked for anyone else for the last 15 years, we would have been fired eight times already . You know, you have to be prepared to probably make mistakes, and that's really unavoidable.
So our worst investment was probably the company we bought through a spin-off . She owned Comdex—it was a computer trade show, the largest of its time. We managed to buy it before the spin-off for about $3 per share. They were planning to issue new shares at $6, it was announced, but we were able to get these shares by buying the parent company and opening a short position in another asset, which cost us about $3.
So far, so good, but we've actually fallen in love with this business. What I liked about this business was that they were doing a trade show in Las Vegas , where at the time you could rent any space for about $2 per square foot and sublease it for $62. So, every time the exhibit expanded, they spent $2 more and received $62 in revenue.
And we fell in love with the operating dynamics of this business, and the stock price really went up from $3. They sold some more shares at six, and the share price really went up to 12. And we had a very large position at a price of $3. The reason is that we thought we could go out six at a time . We didn't go out all six at once because we fell in love with this business.
She grew to 12. Sounds pretty good at the time. But unfortunately, shortly after 9/11......2001, the company bought another exhibit and borrowed a lot of money. And after September 11th, nobody wanted to travel at all, and both... exhibitions went into decline, and everyone knows what financial leverage is.
This means that when you borrow a bunch of money, you're taking a risk: you put in a dollar, you borrow nine—and that's a very risky investment. That's how I learned about operating leverage: it's when you spend two more dollars and get 62 when sales are down, right? Well, when you lose $62 in revenue, $60 of your profit just evaporates and is immediately reflected in your bottom line—this is called operating leverage.
So that was my lesson in operating leverage, stocks, uh, I think I got out when they were a little over a dollar. So, you know, anything can happen, it's a lesson in concentration, a lesson in, uh, operational leverage. I have learned a lot and I can confidently say that I am constantly learning. I always make a new mistake.
I try not to repeat old ones, but they usually have a slightly different look. You're actually making the same mistake, but, you know, it's presented a little differently, you don't notice it and, uh, you make it again. So, I guess the advice is this: don't be afraid to make mistakes, because you're going to make them anyway.
So, Well, I think what Joel said is very important, and I want everyone in the room to take that into consideration. Well, in April I wrote a note called "Dare to be big." And, in essence, it said: if you want to be an exceptional investor, you must dare to be great. Everyone here wants to be big . But to be great , you have to be different.
Because if you think the same way as everyone else, you will act the same way. If you act the same way, you will have the same results. You definitely can't be exceptional if you follow the beaten path. So, to be exceptional, you have to be different. You must also dare to be wrong. And no one has a 100% result.
Well, the greatest baseball player in history had four hits for every 10 at-bats, right? Some investors may do a little better, but no one can have a 100% result. And you know, Joel mentioned that he could have been fired eight times. And, uh, yeah, I had a really good boss, so I didn't...I allowed myself to stay.
And today I had lunch with a guy who works for Berkshire Hathaway. We were talking about what makes Warren successful, and I said, one of the things that makes him successful is he's not afraid of being fired. Well, but very few people have that luxury. And the question for those of us who work in a world where we can be fired, if not by our employers, then by our clients, is : Will we still risk supporting our own ideas, even if they are not one hundred percent reliable?
Will you support things that may turn out to be wrong, and I believe you should take that risk.
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