High Risk Investing: When I Turned One Thousand Dollars Into…

I marvel at how Wall Street creates wealth. This even happens sometimes through high risk investing. An investor purchases a few 100 shares in a small company that hits it’s stride or a start-up that goes supernova and they become a millionaire inside a decade.

That’s not normal. For most investors it takes multiple decades of steady, solid investing to create significant wealth. But it does happen from time to time, as we all have seen.

That’s why the latest opportunities or fads like cryptocurrency and NFTs attract us. It’s why we get caught up in new companies and try to buy in on the opening day of trading. IPOs (initial public offerings) tend to be extremely volatile. That is why investors are better off waiting for several months before they decide to purchase shares.

What if you could purchase shares in a company before it went public though? That would be an extreme level of high risk investing. You are essentially putting money into a company that might not even make it to market. That strategy is more like speculating than investing.

But would you do that given the opportunity? Put money on the line with a chance to hit it big or lose it all? I did once and here’s that story.

My High Risk Investing Venture

A few years after my wife and I were married, we met a couple at our church. The husband worked with an individual who was involved in many high risk trading strategies. He was into all kinds of things – day trading using sophisticated computer software, venture capital deals, and call and put options. If you could name it, he was doing it and having some measure of success.

He approached my friend about a dot.com, business-to-business startup that was looking to raise funds for its company. They were hopeful to eventually take it to market. A group of investors he associated with were all putting money in on the deal. They were raising capital from any and all sources – friends, family, co-workers, etc.

My friend mentioned the deal one night at dinner and asked if we were interested. The company was promising one share of insider stock for every dollar we put in. Sounded interesting.

My wife and I talked it over later that night. We decided to part with $1,000. So later that week, I handed the money over to my friend who passed it along. We were in business.

Our Rationale

I need to pause for a minute to explain my reasoning for this because it sounds wild and crazy. In retrospect, it was. But at the time, the chance to be in on the ground floor of something was very appealing.

We’d never had an opportunity like this come along in our life. And there were no guarantees it would ever happen again. We felt this once-in-a-lifetime moment made it worth the risk.

I also felt comfortable handing over the money because:

1. I had an agreeable spouse.

2. We already had some emergency savings set aside.

3. We were invested already in several mutual funds. We felt we could risk investing in another way.

4. I didn’t need the money for the mortgage or any other bill.

5. It appeared the trend was positive at the time for this type of company to succeed in the market.

So with the money invested, we sat back and waited to hear about news from our company.

The Outcome

For the next couple of months we talked often about our B2B start up often with our friends. How’s it going? Any word?

I routinely checked out their website for any news. We dreamed of the stock being priced at $30 per share and doubling on day one. A month long Hawaii vacation seemed right around the corner.

However, what happened to be right around the corner was an extremely choppy market in late 1999 and early 2000. This put Wall Street on edge. Some IPOs were delayed for fear of the volatile conditions.

Finally, in August of 2000, the market could no longer sustain it’s decade long bull market run. Stocks nosedived – accelerated by 9/11 – for the better part of two straight years.

Bye-bye startup, bye-bye 1,000 $1-shares and bye-bye vacation in Hawaii. Not a great experience with this high risk investing adventure.

Debriefing the Experience

Two questions emerged from this experience that I’ve thought about in the years that have passed:

Question #1: What’s was the big lesson?

Did I learn anything from this? I surely did. The answer to the above question is twofold:

1. It’s foolish to anticipate or attempt to read what is right around the corner vis-à-vis the stock market. It has a short-term ebb and flow that cannot be predicted in advance. What looks good today may be out of favor in three months. That’s why a long-term approach to investing is the wisest choice so one can ride out the short term ups and downs of the market.

2. I should have been more involved in and knowledgeable about the venture capital process. It would have been wise to connect with the owners of the company directly. At the least, I should have met with my friends co-worker to feel him out.

Question #2: Would I do this type of high risk investing again?

Yes (with an 80% probability).

I may lose some credibility with this answer, as it seems to completely invalidate lesson #1 above.

But let me be clear – I’m not out looking for these things. It’s not the pattern of investing that has dominated the second half of my life. I’m don’t chase the latest and greatest opportunity.

However, if something similar crossed my path and it was from a trusted source, I’d take a look at it.

But I wouldn’t bet the mortgage money, or my kid’s college fund or my retirement savings on it. I would only invest small time capital compared to my net worth.

In other words, I’d use money that I wouldn’t regret losing if the venture went south. That’s what happened before. So, I would have to go into it with that same mindset. Hope for the best and expect the worst.

In the end, the chance to have some limited involvement in a start-up before it went public would be an investing opportunity of a lifetime.

Leave a Comment or Answer a Question Below: Ever had a chance to do some high risk investing? If so, how did it turn out? You may completely disagree with my answer to Question #2. That’s OK. Tell me why in the comments below. Would you ever do something like this?

Photo by Jp Valery on Unsplash

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