166: Investments We’d Never Make Again

0:00Hey everyone and welcome back to the Rich Habits Podcast, a top 10 business podcast on Spotify brought to you by public.com. In this episode, we are getting personal. We're diving deep into some of our biggest losing investments and why we will never make them again. My name is Austin Hankwitz. I'm joined by my co-host Robert Croak. Robert is a seasoned entrepreneur with lifetime revenues of over$300 million and I'm a multimillionaire in my late 20s with a background in finance and economics. As the show name might suggest every episode, we talk about rich habits as they relate to business, finance, and mindset.

0:38So Robert, what are we breaking down in today's episode? In today's episode of the Rich Habits podcast, we're going to be talking about our biggest losing investments and why we'd never make them again. I've been doing this for 40 years now, allowing me to lose millions, but also make millions. And I've learned so much along the way. And in today's episode, it's going to get personal. And our goal is with this episode is to ensure that everyone listening learns from our mistakes and don't lose millions like we have. Yeah, Robert, despite me not being as old as you and being in the game for decades like you have, I've been investing pretty seriously, though, for the last decade or so.

1:16Much of that coming over the last five, six, seven years now. I've lost my fair share of money investing in some of the stupidest things you could possibly imagine. but at the end of the day, it's the tuition we pay to learn how to invest correctly. And that tuition has already been paid by Robert and myself. Y 'all don't got to pay it as long as you listen to this episode. Definitely, Austin. And as I reflect over the last 40 years and really try to tally up all of my investing mistakes, I obviously don't know the exact number, but between losing investments in real estate, consumer brands, venture capital, restaurants, and even crypto, I've probably lost a total of around$2.5 million with my biggest losers, including investing$200 ,000 into a restaurant startup in 2015,$300 ,000 in a video-based technology startup around 2017.

2:08And here's a fun one. I lost$50 ,000 in a bowling technology startup that looked so incredibly promising. We had all these licensing deals. Everything was great. and it just never went anywhere. So that's my story. Bowling technology startup. That one's got to make you chuckle a little bit, Robert, because I don't know anyone that's taking bowling seriously. Well, here, let me tell you, let me tell you, though. We looked at it and the founder was an avid bowler, bowls in all these leagues, all this crazy stuff. And he was from Las Vegas, but all of his friends were back in Boston and New York.

2:44He goes, I want to build an app where everyone can bowl against each other in their own leagues, but in a national league on the app and through the app. So we tied it into Brunswick, all these cool things, and it looked so promising, but it still failed. All right. Well, I'm right there with you. I've lost a ton of money over the last 10 years or so. I personally have lost, I would ballpark$350 ,000 to$400 ,000, mainly by investing into venture capital investments, right? Like betting on startups and apps and companies like that. We'll talk about more of that later. But I did lose$10 ,000 trying to get rich quick with some penny stocks.

3:21And I'll break that one down later as well. So, Robert, I think it's time we dive deep and walk people through the three investments we personally would never make again. I feel so vulnerable with this episode, but I'm excited to share these stories. Number one for me is startup ventures ran by new or inexperienced founders. I think it's so important to bet on the founder, bet on the jockey, the quarterback. And as I grew my wealth, I just feel like I became overly confident with my experience and my money. And I felt like I could invest in a wide array of these startups in various sectors and be able to win at a high level.

3:59And boy, was I wrong. What I learned in the first three to five years of venture investing on a big scale wasn't as much important about the idea or the concept, but instead was how good the founder was that I was betting on. Such an important lesson. And this lesson has taught me what I'm sharing with you all today. hey, if you're going to do venture investing, you need to find the founders who are tenacious and driven, who will find a way, even if it means pivoting, because they care so much more about returning capital to their investors and respect the investments. Because so many of these guys, if they're really early on worried more about what they're going to make and how they're going to get paid, they're going to be less hungry and less tenacious.

4:40I always want to bring in that tenacious word because you want people that are growing with you. And if you're already paying them 10, 20, 30 ,000, 50 ,000 a month off of investor capital, they're just not going to be as hungry because their bills are getting paid. They're still eating out. They're still going out with their friends. So that's a really important one. And for me, one other story, too, is really understand them psychologically. I had a story one time where he invested a ton of money. I think it was like three million dollars total. and what these founders did within the first couple weeks is they went out and bought all new furniture, all new computers, all this fancy cool stuff, gaming and all these things, whereas I want to go to a startup office and see IKEA tables, fold-out chairs, and watch them grow into the nice office rather than thinking that's a prerequisite for success.

5:29So that's my side of number one. Yeah, I could never imagine a startup founder paying themselves$30 ,000,$40 ,000,$50 ,000 a month. So any startup founder that, you know, is paying themselves that, that's crazy, right? Pre-seed, seed, series A, series B. I mean, for example, my best investment was a series seed investment. And the startup founder, I believe, had a$75 ,000 salary. And they lived in California. So it was perfect, right? Rock and roll. And I asked him, I was like, are you investing? How do you think about this stuff? And back to your point, Robert, where it's so important, they said, no, my retirement plan is my company does really well.

6:07I make a ton of money for myself and my investors. That's the mindset, not the, oh yeah, my retirement plan is I'm going to make all this money from the salary. I'm going to invest it, whatever. So I agree, Robert, betting on founders that are experienced, founders that are going to have the ability to pivot and leave ego at the door when it comes to disruption in their industry and staying agile and always building for the future. So yes, my first big investment that I'll never make again is in that same vein, but also being overly optimistic about every company that comes my way from a venture investing perspective.

6:43I think when people start dabbling in the dark arts of venture investing, they think it's this crazy cool new asset class, I can go invest in the next Uber, the next Airbnb, look at me, I'm gonna go make a billion dollars or something, right? And so they treat it like they go to their public.com portfolio, they got, you know, 12, 15, 18 single stocks. Oh, I need to go have 12, 15, 18 venture investments, right? Same thing, apples to apples. That's not the case, right? They want to build this portfolio of venture investments. And they say yes, like I did to every single deal that passed them by.

7:17Now, yes, if you're a VC firm, and you'd go raise$2 billion like A16Z, and you have a broad, stroke strategy, you have to deploy that capital. So they're probably investing much more than us angel investors are. But again, if you're an angel investor like myself or Robert, you need to be very intentional and selective about your investments. And the best approach to do that is to build a framework that makes sense for you. I did not have said framework. So an investment I'll never make again, right, is these broad stroke investments into everything that comes across my desk. My big mistake was investing in everything and anything that came across my desk because I thought that these founders who were probably pretty smart, you know, albeit, you know, to Robert's point, some of them were not A players, but they were pretty smart, pretty cool people.

8:03They were building cool products and companies that I was like, yeah, I could use that. Heck, if I'm going to use it, why doesn't everyone else use it? That makes sense. This is going to be a great company. That was dumb. So the lesson it taught me was outline specific characteristics to look for when these opportunities cross your desk. Think about it like a framework, right? I found myself personally investing into venture-backed companies, startups, that were too early in their cycle. Think pre-seed or seed. So many of these companies go to zero, which was the case for me. Now, luckily, a handful of them have gone up to 50, 100X, which made up for all the goose eggs, but so many of them go to zero, and going to zero sucked.

8:46and that does not align with my risk tolerance. So the lesson I learned was to build a framework that aligns with my risk tolerance going forward. So now I find myself investing in Series B, Series C, Series D companies that are well on their way to an IPO in the next five, six, seven years versus a pre-seed, pre-revenue, pre-idea company of some guy or some gal who's got this idea or whatever, they have a hunch of something. I'm like, yeah, I'll write you a check for$10 ,000. Let me get some equity in your company. No, that's dumb. Don't do that. That's an investment I will never make again. Yeah, I think the biggest takeaway for me from what you just put out there from your perspective is to think that we're 30 years apart in age, yet you followed a similar path that I did.

9:31I had all this money. Everything was going great. I'm like, I want to do more venture capital. And I was out investing in way too many deals saying yes, way too often. And this is in an era when I was in West Hollywood, living in LA, where there's gunslingers everywhere and I wasn't selective enough. So make sure you understand your risk tolerance. Make sure you say no a lot more than you say yes. And make sure to write smaller checks when it comes to this venture capital. Because remember, you want to write a check that if it goes to zero, it doesn't hurt your day-to-day life. But if it does well and at 20, 30, 50 Xs, you are in a really good spot because you don't want to be YOLOing all that money into one deal.

10:12You want to take smaller shots into more deals. So that leads me into my second type of investment that I never make again. And that is in alcohol and energy drink brands. Between 2010 and 2015, I made investments in several alcohol and energy drink brands, very much so because I knew the industry. I grew up in the bar industry. I owned restaurants and it was a growing trend in consumer products. However, I realized that a handful of obstacles must be overcome before any of these types of companies will succeed long term. And I did some research. 95 % of all new alcohol brands fail in the first two years.

10:52And holy crap, I wish I'd have known that before. And some would have told me before I lost so much money. I realize now that these sectors are dramatically oversaturated and controlled mostly by the big brands that have massive budgets. So it's hard even for a startup with a great product to get the shelf space and proper slotting to even have a chance to compete. Now, of course, there are exceptions to every rule. We've seen Prime, Alani Nu, and they both taken the country by storm over the last four years. But what you all didn't see or pay attention to is the thousands of other beverage brands that failed during the same period of time.

11:27So distinguishing the winners from the losers is nearly impossible at that investment stage. And despite some of these names like Prime and Alani New that did so well because of influencers, there's still a ton of other influencer-led brands in the beverage space that failed. So this whole space for me is a sector in consumer brands that I will never invest in again. And you guys know that I love consumer products, but I want to have something that I can control the IP that's not oversaturated and that I know I can make a dent in the market and get the shelf space I need or the eyeballs I need to succeed for me and my investors.

12:05Yeah, I think that's a great call out. Alcohol, energy, just drinks in general, right? Just think about how many different drinks there are all over the place. It's just it's so hard. The second investment that I will never make again is in penny stocks. This one seems like a no-brainer. When you kind of look back at it, you're like, Austin, you were buying and selling penny stocks? You idiot. What were you thinking? I know, I know. Well, I was in my early 20s. I was in college and my friend was telling me, hey, have you heard of this hearing aid company? It's trading on the, you know, over the counter pink sheets.

12:37I think I was using E-Trade or one of these silly apps at the time. seven cents a share, Austin, go put five or$10 ,000 into this. And if it goes to only 14 cents a share, only 21 cents a share, you're going to double or triple your money. Could you imagine you put 10 grand in, it doubles to 20 ,000, go from seven cents to 14. How easy is that? Don't listen to them. It's a scam. It's stupid. Don't do that. I made the mistake for you. Penny stocks are considered penny stocks for a reason. Their business is small. It's likely unprofitable. And sure, Maybe there is some upside depending on the company, but 99 times out of 100, they're all just going to go to zero.

13:16They all get delisted. They never get the uplist, whatever, right? They all just go to zero. Now that one out of 100 does exist. Don't get me wrong. You've got the Monster Energies of the world. Monster Energy is a massive company that started as a penny stock. Kraken is another example of that. Billions of dollars market cap started as a penny stock. But it is so incredibly difficult for retail investors to discern between those winning penny stocks and the losing penny stocks because so many of them lose. And because it's so easy to move and manipulate the price of these things, you find yourself falling victim to rug pulls, pump and dumps, or big communities of people come together and pump the stock price up in a short period of time.

13:59And if you're not in on that discord or that text group, whatever it is, you are going to get smoked. I lost$10 ,000 investing in penny stocks, Very stupid thing to do, thinking that I was going to get rich quick. And I will never, ever do something like that ever again. If I instead, Robert, took that same$10 ,000 and I put it into Amazon stock back in 2017 when this happened, it would now be worth over$35 ,000. But instead, it's worth zero. So the lesson here is to forget about the get rich quick schemes, especially when it comes to penny stocks. I will never buy penny stocks again, despite my peers.

14:36maybe even Robert saying, hey, check out this penny stock. Really interesting. I don't care. I stay away from them completely. I don't want them in my portfolio. And maybe that will cost me money in the future, but I've already learned my lesson and it's not something that I will ever do again. I will never make that investment again. Yeah. That is surprising coming from you of all the years I've known you that you actually kind of fell for it and got into the dark arts of penny stocks. I was 21. I didn't know. I know you didn't know any better. I always say to people that are younger when they ask me what to do.

15:07I'm like, if getting rich quick were easy, everyone would be rich. You got to do it the old fashioned, boring way. And you know, sometimes that stinks because everyone wants immediate action, but nine out of 10 times, just like with day trading, you're going to lose money. I think the average day trader, 85 % or 88 % of day traders lose money in their first two or three years. So just make sure you guys understand that we're here to share with you our dark, deep secrets of losses in this episode. So you don't do the same because it looks fun on Instagram. When you see someone saying, buy my discord, buy my course, and I can teach you how to make millions off of 20 bucks.

15:45Trust me, it doesn't work. You just have to do the research and invest correctly and long-term. Well, so far in this episode, Robert, we've been talking about investments we would never make again. Want to give a quick shout out to NEO's investments because those are investments I'm making every single month. Nios offers ETFs that seek high levels of monthly income with a focus on tax efficiency while providing core portfolio exposure across things like equities, fixed income, real estate, cryptocurrency, and cash alternatives like treasury bills. Their ETFs may be especially interesting for investors looking to generate tax-efficient monthly income inside of their investment portfolios.

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17:09There is no guarantee that the Nios ETFs will make monthly distributions, and the amounts may fluctuate from month to month. Cryptocurrency is relatively new, and the market has seen its own specific risks. NIOs ETFs are distributed by Foresight Fund Services, LLC. All right, Robert, so walk us through now the third investment you will never make again. The third and final investment I'd never make again is specific types of real estate. I've been investing in real estate for 35 years now and I've done everything. Single family, multifamily, apartments, trailer parks, office buildings, storage units, you name it, I've invested in it.

17:45Either as a silent partner or someone who's going out there myself with boots on the ground doing the work. I've learned a lot from these investments. Some have made a ton of money and others have lost money as well. But there are two specific themes in real estate that I will no longer invest in. Number one is storage facilities. And number two is office buildings. Storage facilities sound fun. I know that there's a ton of ads out there, people raising money all across the country. and I've invested in the past in a handful of storage facilities from 2020 to 2023 and to date they've all underperformed the other parts of my real estate portfolio.

18:23I also believe with continued downsizing in America, there's been just too much storage facility building and all of the upside is in the past during COVID and after COVID when everyone was kind of stuck at home. And office buildings, those were fun as well, but I invested in that real estate sector in the 1990s and early 2000s. But now since the pandemic and all of the work from home boom, I just don't feel like that commercial office building world will ever see the large upside like it used to. So for me, the lesson here for everyone, real estate is an amazing asset class. And I feel like everyone should have exposure to this asset class.

19:00But choosing the right sector is the name of the game. And I've made my choice as you should. So make sure to always do your own research. What is a cool real estate sector that you are, maybe let's flip it on its head, never investing in storage and commercial again, right? Makes a lot of sense on both of those. What is a sector of real estate that you're like, oh, I love this every day, every time a good deal that fits my buy box comes in that's in this sector of real estate, I always say yes. I would say for me right now with everything we're doing with VestFunder is co-living. I love that.

19:34Rent to own, pretty cool as well. But then also still multifamily. There are so many older hotels, older apartment buildings that are still in thriving areas where maybe the owners are retiring or they're just getting really old and they're not keeping up with the property. There is so much opportunity there because you can go in, add new life into this hotel or this 48 unit or 300 unit apartment complex where they may be built it 20 or 30 years ago, but they're kind of on their last leg. I love those sectors because there's still so much money to be made and wealth to be built for the investors because there's so many advantages to owning real estate as a whole.

20:14So I would say those are my three favorite, but also something that I would like to get into is some more of this affordable housing, tiny home community stuff where you make it just a really cool, but super affordable tiny home situation. And we're looking to do that as well and partnering up with people that specialize in that sector. Very cool. So my third and final investment that I will never make again, and give me some slack on this one. This is more of a broad stroke one. But it's these professional services that used to cost tens of thousands or hundreds of thousands of dollars, like website design, tax strategy, bookkeeping, even some legal services, things like that.

20:55So hear me out. More broad stroke in nature, but that's because what I think is happening right now with artificial intelligence is truly going to disrupt a ton of these professional services and enable the everyday person to have access to what they used to have to pay$10 ,000,$20 ,000,$30 ,000 for. So over the years, I've spent tens of thousands, maybe even hundreds of thousands of dollars, like transparently speaking here, on professional services, specifically tax strategy, bookkeeping, some website design, some legal documents, like things like that. And to be honest with you, I don't even think hiring professionals is like where I go to immediately when I have these needs and these problems.

21:34I instead now look straight toward artificial intelligence. For my tax situation, obviously, just wrap that up. We're filming this here in the middle of April. I put all of my existing tax information from 23, 24, you know, whatever, all the other tax years, as we kind of think about 2025 tax year here, I put it into my favorite large language model. And then I gave it 30 different documents that pertain to my specific tax situation, PDFs, screenshots, everything, just like everything I could find. I put it in there and it spit out for me everything that I needed to know about how much that, you know, what the QBI deduction is, what's going to look like this?

22:11How do I think about this write-off? What do I have to pay to federal? What has to go? It broke down all of that. And then I asked it, hey, how do I lower my tax burden, taking everything you know about me, my business, everything I'm doing right now, come up with some ideas for me that's going to allow me to lower my tax burden for 2026 tax year. And so it gave me four or five different examples of things that I'm now going to take to my real tax strategist and say, hey, why didn't you tell me to do this last year? And then also help me do this this year, right? So like, I will never spend 50, 75,$100 ,000 again, going out and hiring these, you see Facebook ads for them all the time.

22:53And you see these, oh, yeah, we'll do tax strategy. Do you want to make a quarter million dollars tax free, pay me 10 grand, I'll tell you how to do it, right? Like, I don't think any of that is, is going to be useful in the future with the rise of artificial intelligence really as smart now as it is with opus 4.6 and we just saw mythos come out and like all these really really cool large language models spud is right around the corner fine line still obviously is my accountant i've got other legal professionals in my corner right i'm not subbing that out but when i'm doing first instead of blindly going to find someone that has experience in in a problem that i'm trying to solve.

23:31I first then go straight to artificial intelligence, like a Claude Opus or, you know, a chat GPT or Gemini Pro thinking or whatever. And then I ask it, hey, what can I do? What's going on? And then I take that information and then I go to a tax strategist and say, hey, can you just proofread this? Can you make sure I'm not crazy to be thinking about some of this stuff? Because again, they're insured, they've got licenses and stuff like the AI doesn't. I totally respect that. but I'm going to AI first. I'm not, you know, I don't find myself saying, man, I need to go spend$20 ,000 to go learn a tax strategy.

24:03That's not an investment I think I'll ever make again in the future. I would rather take that same time energy and put it into a large language model or something of that nature to flesh out some new ideas. I love this hot take from you. You say it's generalized, but I think it is very, very important for the broader audience. And I think about like my day-to-day right now, like when you talked about legal a little bit, Before I send something off to an attorney now I run all of the details through one of these ai large language models and say What can I do here? How do I craft this? What is the best way to do it?

24:37I get it all dialed in and send it off to them just to put a bow on it to make sure it's good because It saves me so much time and money because you think back even a few years ago austin for us to figure all this out It took back and forth for weeks with an attorney or cpa or accountants Now I can have answers right away like, is this lease correct? Is there anything egregious in this lease I should be concerned with based on Florida law? All of these things, I ask all of you to take a moment before you just automatically go to all these powers that be that you pay so much money and use these tips that Austin just laid out.

25:12Because I think it'll save you thousands, if not tens of thousands of dollars a year to be able to accomplish the same result and maybe even a better result. because a lot of these people that are out there, no offense to my CPAs, they're just towing the line. They're not out there trying to find you all the newest cool stuff because we always say it's not what you make, it's what you keep. So use the AI to your benefit. But Austin, I love, love, love that take. And before we round out the episode, I want to give one more pro tip, a little bonus tip. We've both fallen victim to over the years, and I want to reiterate that right here before we move on because I think it'll help so many people not make this massive mistake like we have, and that is stop investing based on hype.