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You can invest in almost anything. Beer, wine, space, a collection of different real estate projects… the list goes on and on. Investors choose their investments for various reasons. They are risk takers. They are not risk takers. They are loyal to the brand. Once again, the list goes on and on. Fortunately, if properly diversified, many investors can handle these dips in their portfolios.
Despite the many successful investment options, there have also been some truly disastrous investments that well-known investors and even average Joes have invested in over time. Here are 10 of the worst investments in history that you can take a lesson from when choosing your next investment.
the short version
- Some companies (*cough, cough* Blockbuster and Sears) that seemed like safe investments at the time turned out to be some of the worst stock picks.
- Cryptocurrencies and NFTs have proven to be extremely volatile investments, making them two dangerous options for inexperienced investors.
- Day trading is another dangerous game that ultimately ends in substantial loss for most investors.
Yes, you read that right. Let’s get the ball rolling by talking about tulips. The tulips are the first real example of a major investment failure. Back in the 1630s, the Dutch faced a craze for tulips, nicknamed Tulipmania. Intrigued by the new exotic tulips, the price went up 12-fold, but as you can imagine, these high prices were not sustainable.
When prices suddenly fell, merchants, farmers, and others involved in the tulip trade paid the price. Those who invested in these tulips spent, at most, 5,000 guilders, the equivalent of a whole house at the time.
Think about the last time you stepped foot in a Sears. If you can’t remember, that’s exactly why investors in Sears haven’t done well over the years. Once purchased by hedge fund trader, Eddie Lampert for $11 billionthe company has been in decline ever since and was even bankrupt for four years.
While Lampert recently settled his legal battle with Sears, winning $175 million in the deal, other investors haven’t fared as well. Today, the stock price is extraordinarily low, so it remains a bad investment to this day.
Jeff Bezos may be one of the richest men on Earth, but even he has had his share of troubles in his life as an investor. He invested about $50 million in the online pet store, pets.com, in the late 1990s. You may remember pets.com for its sock puppet dog who was the company’s icon, even appearing in a Super Bowl commercial.
Ultimately, the company failed before it really got going, starting the dot-com explosion. A interview with former president he explains that the company was simply too far ahead of itself. In the early 2000s, there were not enough customers shopping online to fully support the growth of the company. That, and they simply couldn’t raise the capital to meet their financial needs.
Younger readers may have heard their parents talk about Blockbuster, completely amused by the inconvenience of going to an actual store to find the latest DVD or VHS movies. In its hay day, Blockbuster looked like an extremely futuristic stock pick, a sure bet. Them raised over $18 million in funding from investors back in the late 80’s.
Clearly, no one expected the rise of Netflix, Hulu, and the dozens of other streaming services. In 2010, Blockbuster finally filed for bankruptcy and left the scene with more than $900 million in debt.
Enron was once one of the most successful energy companies and a favorite among Wall Street investors. With $63.4 billion in assets, it was a shock and a huge disappointment when the company suddenly went bankrupt. Unlike Blockbuster and Sears, which simply went out of date, Enron went bankrupt due to insider fraud. Both the CEO and CFO went to jail and shareholders sued for $40 billion.
“It is essential to understand how your investment works. Enron is one of the best examples of this,” says Asher Rogovy, chief investment officer at Magnifina, LLC. Enron’s collapse was a rude awakening to the inner workings of the stock market and the very real potential risks associated with investing in it.
Waumbec Textile Company
Warren Buffett is one of the most respected investors in history. worth amazing $102.9 billion, has clearly made the right investments. Having said that, Buffet is not ashamed of mistakes did from the beginning. Waumbec Textile Company is perhaps their biggest investment mistake to date.
Buffet bought the company in 1975 and did his research before buying. He believed in the company’s reputation and projections. However, just a few years after buying the company, he went bankrupt, and Buffet lost most of his investment.
How can an investment be one of the worst investments ever when some people have made billions on it? Crypto is not necessarily the worst performing investment in history, but it is definitely one of the most dangerous. For starters, there are virtually no restrictions or rules regarding cryptocurrencies, so you are investing at your own risk. With big swings in the price of almost every type of coin, the thousands people invested yesterday are only worth dollars now.
Cryptocurrency prices are, in many ways, based on hype and marketing. This causes investors to jump in without really researching what they are investing in. “Unsophisticated investors are buying things without understanding how they work,” says Rogovy. “Cryptocurrency enthusiasts often scoff at government currencies as fiat, but most don’t understand the fragility of faith required to maintain the value of digital assets.”
Rogovy gives the collapse of the moon as an example. Around $60 billion in digital assets dried up and disappeared when the crash happened. There were tons of investors who lost a substantial amount of money, in part, because they didn’t fully understand what would happen in the event of a crash.
In the same vein as cryptocurrencies, NFTs are perfect examples of risky investments that didn’t pay off. recent data shows that NFT trading is down 97% since the start of 2022. Even the most popular NFTs are worth substantially less than they once were. One of Eminem’s Bored Ape NFTs has lost over 85% of its value since he bought it. Justin Beiber’s Bored Ape NFT is also down substantially from $1.3 million to around $69,000.
NFTs are inextricably linked to crypto, so it makes sense that the value of NFTs has continued to fall. Also, NFTs get their value from hype, just like cryptocurrencies. When interest drops, for whatever reason, investment drops, making NFTs very unstable investments.
While not technically an investment, I’m including them because of a 2014 Mark Cuban interview where he said “credit cards are the worst investment you can make.” I tend to agree with this sentiment. After all, the average American has $6,194 in credit card debt. The problem with credit cards is the cycle of debt that is easy to get caught up in.
When you need to finance a sudden purchase (ie broken refrigerator, car repairs, home improvement, etc.) it’s easy to swipe your card. You already have the line of credit and will pay it back in small increments. Well, the longer you don’t pay your balance, the more interest it will accrue. With a average interest rate of 21.03% (for new offers), this can add hundreds, if not thousands, to your bills over time. Of course, none of this is to say that you shouldn’t use credit cards, you just need to be able to use them responsibly 100% of the time.
Day trading involves buying and selling shares during a single day (hence the name). To become a successful day trader, you need to know almost everything about the markets, and that’s simply not possible. This is proven by the very low number of investors who actually make money from day trading. A Brazilian study He discovered that only 3% of his group of traders make money from day trading.
When times are tough, day trading can be even more difficult. During the height of the COVID-19 pandemic, the bull market forced day traders to lose over $1 billion. For 97% of investors, the risks of day trading far outweigh the rewards.
The bottom line
There are many investments to choose from, and no matter how hard you try, it can be hard to see the results of those investments. Even once successful companies have long since failed, losing millions of their initial investors. To protect against these losses, work with a financial advisor and make sure you maintain a diversified portfolio.
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