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Today’s post is the complete opposite… It’s about the five months of consistent failure I’ve endured since October 2016 and the magic this is now leading to.
I planned for this post to come out shortly after the last one. But until now, I didn’t have enough time to write it. Or the better term is that I didn’t make enough time to write it until now.
I’ve been busy building the Rivera Holdings investor base. Busy looking for deals. Busy building my real estate career. Busy making connections. And busy trying to make money.
But those are excuses.
If I really wanted to I could have made time to write this post. The main reason I didn’t is because it’s about failure.
Failure is hard on the psyche. Failure isn’t fun. Failure is hard to talk about. And it’s certainly not fun to write about.
Even when you’re learning, improving, and growing as I did in 2016 and have continued doing in 2017, failure without much success – or perceived success – takes its toll.
I’m extremely hard on myself, have been ever since I was a kid, and likely always will be. I’m always trying to improve, learn, and succeed in anything I do. And no matter how much I do always think I can do more.
Because of this anytime I endure consistent failure, thoughts like the following begin to creep in and lead to even more doubt and frustration.
Should I keep going?
Why am I doing this?
Is this worth it?
When is this going to work out?
Will this ever work out?
When will I begin to succeed?
Will I ever succeed?
Should I do something else?
But because I’ve gone through this many times now I know this is the process I go through before figuring things out.
I spent a month or two in the “this is terrible” and “I’m terrible” phase while writing, editing, and getting the book ready for publishing.
The whole process from planning the book, to writing it, to publishing it took almost 10 months. So this means I spent about 20% of the time while working it in the “This is terrible” and “I’m terrible” phases.
I don’t remember what got me out of that mindset other than continuing to work and grind every day and then publishing the book.
Earlier, I went through this same process before knowing what it was while beginning to learn about value investing. And I’ve gone through this process multiple since then when starting businesses, raising capital, and with various other ventures.
I’m talking about all this because from October 2016 until now in Spring 2017 most of what I’ve done has failed.
But through failure comes progress…
We’ll talk about progress soon but let’s finish talking about how much I’ve failed in the last five months.
The Failed Acquisition
In November 2016 I posted that Rivera Holdings was going after its first acquisition target. The owner and I agreed to an $8 million purchase price for the business and the land. And we agreed on a 60 day exclusivity period.
The land, property, and equipment by themselves were worth between $6 and $7 million and I valued the business – including operations, land, and equipment – at between $10 and $15 million.
The business produced excess cash flow. Had long-term competitive advantages. And with some cost cuts and expansion, I projected cash flow to almost double within the first two years we owned it.
We had the chance to buy a cash flow producing business with long-term sustainable competitive advantages at a cheap price, with a huge margin of safety, and good potential upside.
So what happened?
The short answer is I failed…
Not because I didn’t put in the effort or time to query and pitch to investors. But because I was a horrible sales person and didn’t have the right connections.
I sent emails, called, Skyped, and talked in person with more than 2,054 people during our 60-day exclusive letter of intent before informing the owner I wasn’t able to raise the capital to buy his business.
Out of the more than 2,054 people I was in contact with about acquiring the business I got no response from more than 90% of them. Major failure.
The people who did respond to me were receptive and said I impressed them with my analysis and detailing of the business. But I heard two things over and over about why they wouldn’t invest.
The first was that I lacked experience running a multi-million dollar business like this.
And the second was that because they didn’t know me on a deep personal level we didn’t have enough trust built up between us for them to trust me with millions of dollars of capital.
I had an estimated 98% failure rate talking with people about becoming Rivera Holdings investors so we could buy this business.
But what did all this failure lead to?
It helped me realize I needed to work on several things to get to the level I want to be on.
The first thing I needed to fix was being a horrible sales person. Because by not closing this great opportunity I failed myself, my investors, and these potential clients.
The second thing was that I needed to gain experience owning and running a business. This is one of the reasons I got into real estate. I’ll talk about the other reasons in a separate post.
And the third thing it helped me realize is that I needed to grow my network of connections.
This leads us to much more failure…
Much More Failure
After the acquisition failed, I stopped to think about what I needed to do going forward and where I needed to improve.
I talked about these above and then got to work again.
This now leads to major failures – yes multiple – every day.
A typical work day of mine now looks something like the following:
Call 10 to 20 people to talk with them about their home or property. Either for Rivera Holdings to acquire for investment purposes, or for me to list for sale as a real estate agent.
On average I hear back from only one to two of these people. Or about a 90% failure rate.
Email 20 to 30 people about the same as above. Generally, I hear back from 1 to 3 of these people. Or a 90%+ failure rate.
Go to any appointments I’ve set to either list a home for sale or look to buy it for Rivera Holdings.
Learn by listening to Audiobooks anytime I’m in my car… The only time of my day I’m not failing.
Send out information to potential investors every week on deals I’m looking at now or have looked at in the past. There’s a 99%+ failure rate here.
Do preliminary due diligence on 5 to 10 assets I’m considering investing in. This includes looking at single family real estate, multifamily real estate, public companies stock, private businesses, etc. After doing this I generally only consider one of them a good investment. Or a 90% failure rate.
After doing more due diligence I generally will put one to two offers in on properties per day. Or consider doing further due diligence on a public or private business. This is after looking at more than 100 potential assets.
So on average for every 100 assets I look to invest in, after doing due diligence I will only consider investing in at most two of them. Or a failure rate north of 98%.
As of this writing, I’ve had zero of the 30+ offers I’ve submitted accepted. Or a failure rate of 100%.
And I have a wife and two young daughters so I get told “no” and am failing on a constant basis at home :).
After reassessing what I needed to do after the failed acquisition I now fail every day on a massive scale. Something I haven’t done on this large of a scale since I began learning about value investing 10 years ago.
I now swim in failure. But by doing this over the last five months or so something magical has begun happening.
The Magic Of Massive Failure
For years I’ve known I needed to take more action every day.
That I’ve needed to call and email more people, meet more people in person, research more public and private businesses for investment, and recently to research more properties to invest in and talk to more people about helping them buy and sell their homes.
But this is hard because it involves a lot of failure and discomfort through things like cold calls or sending out mail or email advertisements.
Without failure there is no learning or improvement. Without massive action you’ll never reach your goals because you’ll never be putting anything into practice and others who are doing more will leave you in their dust.
But by doing both of these things you’ll kick learning and improvement into overdrive. And this will get you towards your goals and dreams faster.
And we all want to succeed faster.
So where has all this massive action and failure over the last five months gotten me?
I outlined some of the great things that happened since putting in massive amounts of effort every day in the 2016 Performance Review post. And I repost these below:
Started Rivera Holdings LLC.
Began raising capital.
Grew personal connections by an exponential amount due to capital raising efforts.
Grew from 320 subscribers between Value Investing Journey and Press On Research to now 455 total subscribers between those two services and now also the Rivera Holdings Mailing List.
Read between 50 and 75 books in 2016.
Grew from 720 followers on Twitter as of the beginning of 2016 to 1,008 now.
Grew from 790 connections on LinkedInas of the beginning of 2016 to 896 now.
For the first time in three years expanded my circle of competence in terms of industries. I now understand and feel comfortable evaluating three new industries – marinas, hotels, and multifamily real estate.
Also expanded knowledge and experience into the private equity/investment arena as well.
But the above aren’t the only things that have begun happening since taking massive action and experiencing massive failure. I’ve also…
Continued expanding my personal network and connections by an exponential amount.
Had lunch with, rode in cars with, talked in person with, and talked on the phone, through email, or through Skype with people who are worth more than $700 million combined in the last few months. And who have access to more than $1 billion in capital.
Have even talked with a few about consulting with them on some projects.
Built up a huge deal flow. After losing the original acquisition I had nothing else to attempt to acquire for a couple of months. I’m now looking at and putting multiple offers in every day on assets.
Expanded my knowledge of sales and the sales process immensely.
Gotten Rivera Holdingson more than a dozen distribution lists for businesses, homes, investment properties, multi-family properties and more. These give us access to deals before they hit public market sites like Loopnet.
Begun setting and going to more appointments with potential investors, home sellers, business partners, and business brokers.
And have hired two part-time independent contractors that I plan to hire full-time within the next month.
Not only am I doing all the above things, but because I’m acting in such a huge way I’m learning faster than I have at any time since first beginning to learn about investing almost a decade ago.
So is failure really failure if you’re learning, improving, and getting closer to your goals? Or is not trying failing?
Case in point – the picture below is from a post I wrote on Facebook in February.
The picture on the left is truly failure… While I have always read and learned as much as possible it doesn’t matter if you never put anything into action.
March was almost completely filled up. And April will be even more productive than March.
So am I failing? Or am I gaining the wisdom, knowledge, experience, and connections required get to where I want to take Rivera Holdings?
I told Value Investing Journey and Press On Research subscribers last week that I’m opening an investment holding company. After getting some great feedback from them I’m ready to ask you loyal readers for help as well.
The short 9 question survey below should take you about two and a half minutes to finish. So if you could please spare two and a half minutes of your day to do the survey below it would mean the world to me. And help towards the next step of starting the company.
The information provided will be shared with no one else but myself. And it will be extremely valuable to this process of starting everything.
Thank’s so much to the people who have already given their opinions.
And for those of you who have shown interest in the company I will be contacting you as soon as I finish putting the information together.
Is it possible to learn invest securities simply by reading? If so name the books
Below is an answer I wrote on Quora to the above question. The question and answer are important to how we all learn our craft of value investing so I’ve decided to post it here as well.
In this post I even show my first ever “analysis” article I wrote less than four years ago to prove how much someone can improve in a relatively short amount of time.
As Matus said the answer is no.
Books are a great place to learn concepts and theory but if you don’t know how everything works together in the real world it won’t matter. One of the best ways to learn this is by practicing a lot.
How does someone practice value investing?
There are several ways but the best thing to do once you know the basic finance and value investing terms is to begin reading company financial reports – 10K, 8K, Proxy, 10Q’s, etc – then taking notes while reading these financials. Value the company if you know how. And then build an investment thesis from all that information.
It’s then best to show this analysis to someone who knows more about value investing so they can give you feedback on where you can improve. Things and concepts you may have not thought of that you want to add for the future. Etc.
The best way to do this if you don’t know anyone personally who knows about value investing is to start a value investing blog to get feedback. And/or also by posting analysis on sites like Seeking Alpha and Guru Focus.
Beware and don’t take it personally but your first shots at analysis will be crap. Mine was and I post my unedited first ever written “analysis” below to prove this. Be prepared for the suck.
With 343 million proportional customers (total customers multiplied by its ownership interest), including its 45% stake in Verizon Wireless, Vodafone is the second-largest wireless phone company in the world behind China Mobile. It is also the largest carrier in terms of the number of countries served. Vodafone has majority or joint control in 22 countries and minority or partnership interests in more than 150 total countries. The firm’s objective is to be the communications leader across a connected world. They have four major markets that they break their financials into: Europe, Africa Middle East and Asia Pacific or AMAP, India, and the United States through a partnership with Verizon.
1. Huge company operating in more than 150 countries making them more diversified and able to withstand drops in revenues and profits coming from a single region or country.
2. Generates huge free cash flows of at least $8.25 Billion in each of the last 8 financial years. Free cach flow or FCF is basically the money thats left over after expenses, dividends, payments, etc. that the Vodafone can use as it pleases. Generally VOD uses their FCF to increase their dividends, buyback their own stock, acquire other companies, or pay down debt.
3. Current dividend yield of 6.97%, the average company in the S&P 500 has a yield of around 2%. Pays a semiannual dividend in June and November of each year. Also receiving a special dividend from Verizon, $ 1 billion of which will go to paying down Vodafone debt, $3.5 Billion will go to pay a special dividend to Vodafone shareholders in January or February of 2012.
4. FCF/Sales ratio over 16% each year since the 2002 financial year. Anything over 5% means they are generating huge amounts of cash.
5. Interest coverage ratio of 23.4, anything over 1.5 is good. Interest coverage ratio is how many times they can cover the payments of interest on their debt.
6. Payout ratio of around 50% for the dividend meaning the dividend should be safe for the foreseeable future.
7. Raising their dividend an average of 7% per year for the next 3 years.
8. Lower debt/equity than their industy competitors.
9. Growing a lot in Asia, Middle East, India, and parts of Africa. Also still a lot of room to grow in those areas as they are relatively new to them, especially India.
10. Paying down debt with FCF.
11. Gross margin, net margin, and EBT margin all over 17% which is very good.
12. Still a lot of room to grow their revenue through people upgrading to smartphones and paying for data packages which they make more money off of then regular phones.
13. Executive pay is linked to how well the company does, and they encourage their executives and directors to own company stock.
1. Still a lot of debt even though they are paying it down, around $40 Billion
2. Most of Western Europe except Germany, are having huge economic problems which has led to lower sales an profits in those areas.
3. The fear or actuality of another global recession would hurt their sales and profits.
4. Problems at Verizon which VOD owns 45% of would hurt future payments from Verizon to VOD.
5. Most of their revenue is generated in Europe where as above, there are big financial problems.
6. Since they are in so many countries they have to deal with many regulations and sometimes even lawsuits from other goverments or companies in those countries.
Overall I feel very good about Vodafone’s prospects to be a great investment for the long term. We are buying them when they are valued at a very good price, especially compared to their competitors. They have huge growth potential in India, a country that has over 1.3 billion people, as they have only penetrated that market by around 10%. They are paying down debt, upping their dividends and receiving a special dividend from Verizon. Even if their share price doesn’t go up over the next few years, which I believe it will by quite a bit, then we are still covered by the near 7% dividend that they are going to keep growing atleast 7% a year for the next 3 years. Also, with their huge FCF they can maybe pay down debt faster, acquire other companies to keep growing, pay more dividends, or buyback their stock.
As always if there are any questions let me know. I believe we will all do well with this stock in our portfolios over the long term.
Man that’s painful to look back on. But it’s also inspiring as well.
The analysis is painful to look at because along with the obvious misspellings I didn’t even attempt to correct for whatever reason the analysis doesn’t do anything but spout off random stats I pulled from it financials and places like Morningstar.
That’s not analysis. That’s a regurgitation of facts.
You can see glimpses of analysis in the above piece such as the paying off debt with FCF line. But I don’t take these lines any further. I again chose to just leave off by stating facts. Not what the underlying effects of these things would have on the company. That’s analysis.
At this point I’d been learning about value investing off and on for years but wasn’t improving much because I hadn’t written anything down or shown it to anyone else until the above post.
I actually sent the above “analysis” to a family friend who I was managing some investment money for. Bless their hearts they still stuck with me. They must really love me to have done so 🙂
But the above is also inspiring because in less than four years I’ve gone from the above train wreck to being hired by a prominent investment newsletter due to my analytical ability.
Writing regular 30 to 50 page analysis reports on companies for subscribers and investors I manage money for.
Have written an acclaimed value investment education book teaching everything from the concepts of value investing, to various valuation techniques, how to develop the proper mindsets and processes. Etc.
And am told a version of the following on a regular basis – “If I were to go to anyone in the entire company to get a second opinion on my company analysis I would go to your first.”
Posting analysis – and the above one less than four years ago was my very first written remember – jumped my analysis articles, abilities, thought processes, and education into hyper speed.
Doing analysis on a company. Writing it down. Showing it to someone who can give you feedback. Implementing that feedback into future analysis. And then repeating over and over. This is a great way to learn value investing.
But it’s still not the best.
Study after study shows that teaching is the best way to learn any skill and value investing is no different.
This is also another reason you should start a value investing blog so you can teach others.
The below learning pyramid graphic is from the National Training Laboratories showing the best way to learn things.
Now to get back to your original question you see reading at the top showing you only retain ~10% of the information you read and why I struggled before writing things down.
This is how my value investment education jumped into hyper speed by combining practice by doing and teaching.
Anyone asking me how to learn any skill I always tell them to do the same thing that worked best for me.
Doing analysis on a company. Writing it down. Showing it to someone who can give you feedback. Implementing that feedback into future analysis. And then repeating over and over. Then start teaching others as soon as you can to help retain even more information.