We all love hearing about the wins, right? The 100x investment, the unicorn exit. I’ve had my share, and they’re intoxicating. But that’s not where the real learning is. The real learning is in the losses. The gut-wrenching, stomach-turning, million-dollar mistakes. Nobody talks about those. I’m going to.
I’m going to tell you how I lost a million dollars on a single deal. Not to brag about the loss, but because the lesson I learned from it was worth more than the money. It was a masterclass in portfolio construction, and it’s a lesson I want to share with you.
The Setup
A few years back, I was on a roll. I’d had two successful exits, my angel investments were crushing it, and I was getting into bigger and bigger deals. I felt like I couldn’t miss. I started to get into secondary markets, buying shares from early employees in hot pre-IPO companies. This is where things went wrong.
There was this one company—a real rocket ship. Everyone was talking about them. They were the next big thing. And I had a chance to get in. An early employee was selling a block of shares. The price was steep, but I was convinced it was a sure thing. I did my homework, the numbers looked solid, and I let the FOMO get the best of me. I went in, and I went in big. I wrote a check for $1,000,000.
The Blind Spot
I was so mesmerized by the company's potential that I ignored a critical detail: how this one investment would throw my entire portfolio out of whack. I was already heavily concentrated in late-stage tech. This deal was like pouring gasoline on a fire. I was breaking a cardinal rule of investing: diversification. But I was blinded by the dollar signs.
The Crash
The deal closed. For a while, I looked like a genius. The company’s valuation kept climbing. I was already mentally spending the profits. Then the music stopped. The market turned, the IPO window slammed shut, and the company’s growth hit a wall. The value of my shares cratered. I was stuck with a million-dollar hole in my portfolio.
Losing that money was a punch to the gut. It was humbling. But it was also the best tuition I ever paid.
The Realization: It’s All About Construction
My mistake wasn’t just one bad investment. It was a bad investment strategy. I was playing a game of picking individual winners, not building a resilient portfolio. I had no real plan for portfolio construction.
Portfolio construction isn’t just about picking hot stocks. It’s about building a system that can withstand shocks. It’s about asset allocation, diversification, and risk management. It’s about building a portfolio that lets you sleep at night.
Here’s what my million-dollar mistake taught me:
- Diversification is your only free lunch. Don’t be a hero. Spread your bets. Across asset classes, industries, and stages. When one thing zigs, you need something else to zag.
- Know your own stomach. How much pain can you really handle? Be honest with yourself. This will dictate your asset allocation. If you can’t stomach a 50% drawdown, don’t be 90% in tech stocks.
- Think in decades, not days. Stop trying to time the market. You can’t. The real money is made by owning great assets for a long time.
- Rebalance or get unbalanced. Your portfolio will drift. Your winners will grow, and your losers will shrink. You have to periodically cut your winners and add to your losers. It feels wrong, but it’s the only way to stay diversified.
The Comeback
That million-dollar loss forced me to get serious. I tore down my old approach and built a new one from the ground up. I have a written investment plan now. I have rules. I’m more diversified than ever. I’m a better investor because I lost that money.
I still make mistakes. Everyone does. But I learn from them. And that’s the name of the game. Investing is a marathon, not a sprint. There will be bumps in the road. The key is to stay in the car.
I hope my story saves you a million bucks. Don’t let the siren song of a single deal distract you from what really matters: building a portfolio that can last.
Frequently Asked Questions
What's the most common pushback you get on this?
People often push back by citing exceptions or edge cases. And they're usually right that exceptions exist. But building a strategy around exceptions rather than patterns is a losing game for most founders.
What experience informs this perspective?
This perspective comes from over a decade of building companies in Silicon Valley, two successful exits (RemoteTeam to Gusto, MovieLaLa to Gfycat), and investing in 200+ startups including Anthropic, OpenAI, and Scale AI. I write about what I've lived.
How has this view evolved over time?
My thinking on most topics has changed significantly over the years. Early in my career, I held many conventional views that experience proved wrong. I try to update my beliefs when the evidence changes.