My Worst Investment Ever Podcast
Business:Investing
BIO: Luke Gromen has 25 years of experience in equity research, equity research sales, and as a macro/thematic analyst.
STORY: Luke put a large position in a private equity investment because it had a great founder who had previously created and sold some tech companies. Additionally, one of Luke’s dearest friends went to work there. However, he didn’t realize that the company was overvalued, so when the founder couldn’t raise funding, the company collapsed, and Luke lost all his money.
LEARNING: Position sizing is crucial. Don’t get too excited and emotionally invested in an investment. Be careful when investing in illiquid assets because you can easily get trapped.
“Start small; you can always get bigger. You’re better off chasing a higher valuation down the road of a more successful operation than starting too big and then having to put in more money or be stuck.”Luke Gromen
Guest profile
Luke Gromen has 25 years of experience in equity research, equity research sales, and as a macro/thematic analyst. He is the founder and president of macro/thematic research firm FFTT, LLC, which he founded in early 2014 to address and leverage the opportunity he saw created by applying what clients and former colleagues consistently described as a “unique ability to connect the dots” during a time when he saw an increasing “silo-ing” of perspectives occurring on Wall Street and in corporate America. FFTT caters to institutions and sophisticated individuals by aggregating a wide variety of macroeconomic, thematic, and sector trends in an unconventional manner to identify investable developing economic bottlenecks for his clients.
Prior to founding FFTT, Luke was a founding partner of Cleveland Research Company, where he worked from 2006-14. At CRC, Luke worked in sales and edited CRC’s flagship weekly thematic research summary piece (“Straight from the Source”) for the firm’s clients. Prior to that, Luke was a partner at Midwest Research, where he worked in equity research and sales from 1996-2006. While in sales, Luke was a founding editor of Midwest’s widely-read weekly thematic summary (“Heard in the Midwest”) for the firm’s clients, in which he aggregated and combined proprietary research from Midwest with inputs from other sources.
Luke Gromen holds a BBA in Finance and Accounting from the University of Cincinnati and received his MBA from Case Western Reserve University. He earned the CFA designation in 2003.
Worst investment everLuke’s worst investment ever was a private equity investment he made. He started investing in it in early 2001, relatively early in his career when the US was already in recession. The investment was in a tech company similar to Amazon but for construction supplies. It had a database targeting the industrial B2B space.
The company had a great founder who had previously created and sold some tech companies. Some friends of Luke knew him and spoke highly of him. Additionally, one of Luke’s dearest friends went to work in the company, so he had somebody on the inside telling him the company was going well. All this made Luke overconfident, and he went in too big. The investment was about 30% of his entire net worth. Luke didn’t think anything wrong was going to come up. Then Luke met the founder and realized he was not a very good salesperson. He didn’t think much about it anyway.
One day, Luke talked about his investment with a tech analyst at work. When he mentioned the initial valuation, the analyst told him he would lose all his money. This is because the initial valuation was too high. Luke was perplexed by the analyst’s declaration, but he still believed he’d made a good investment.
Luke was still hearing from his buddy at the company, who kept reassuring him that the company was going well. The company had a deal with a major international conglomerate to be acquired. Luke would have made about 8x his money from this sale, but the founder dilly-dallied, and 9/11 happened. There was a funding recession due to 9/11, so the deal never happened, and Luke lost all his money.
Lessons learnedPosition sizing is so critical because you can easily be wrong or unpredictable things like 9/11 can happen and burn down your investment. So when position sizing, start small and go big later. You’re better off chasing a higher valuation down the road of a more successful operation than starting too big and then getting stuck in a bad investment.
Luke’s recommendationsLuke recommends checking out FFTT, LLC, to learn more about his various research product offerings.
No.1 goal for the next 12 monthsLuke’s number one goal for the next 12 months is to maintain a healthy balance of helping clients, engaging in markets, and spending time with the people who matter: his wife and three boys.
Parting words“I’d like to thank everybody for listening; I appreciate it. I really enjoyed talking with you about my worst investment. It was therapeutic.”Luke Gromen
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Connect with Luke Gromen
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Christopher Panagiotu – Go With Your Gut, but Verify
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ISMS 28: Stocks for the Long Run
Folarin Daniel Adeboye – Business and Friendship Can Never Mix
Dana Anspach – Loving a Product Is Different From Running a Business
ISMS 27: Larry Swedroe – Familiar Doesn’t Make It Safe and You’re Not Playing With the House’s Money
Manisha Thakor – Invest in Your Financial Health and Emotional Wealth
Richard Smith – Anything Valuable Is Hard
David Perry – Bet on the Person, Not the Idea
Tom Wall – If You Make Some Money, at Least Take Half off the Table
Rick Warner – Be Careful When Investing in Banks
Mohit Tater – You Don’t Know What You’re Getting Into Until You Are in It
Vorathep Srikuruwal – Walk That Property Before You Buy It
Phil Bak – Be Slow to Jump Onto Bandwagons
Jack Schwager – Never Stay in a Position That Violates What You Believe In
Sampark Sachdeva – Don’t Be Afraid to Take the Plunge
ISMS 26: Larry Swedroe – Are You Subject to the Endowment Effect or the Hot Streak Fallacy?
Vishal Bhardwaj – Do Not Let Emotions Run Your Business for You
Harjeet Khanduja – Work Smarter Not Harder
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