280: Angel Investing and Shiny Objects!

As a flaming entrepreneur, I had a serious problem when I was a young man: Shiny Object Syndrome. After surgical residency, I had a couple of major business successes. Having never failed in business before, I kept pushing the limits. It wasn't about the money back then. You see, natural entrepreneurs like me enjoy money—no doubt. But we use it mostly as a way to keep score. If you create a successful business, you make money. That means you win the game. If you don't make money, you lose. At first it wasn't a big deal. I was tinkering with businesses that were costing me thousands of dollars but I was already making seven figures. Then, I made a major mistake. I pushed the limits on the goose that was laying the golden eggs. I tried to expand a highly successful business way too fast while financing it entirely myself. It was a big gamble. In fact, had I won that one, it would have been game over. But I lost. And losing this one was a big deal because I killed that gold laying goose! I was millions of dollars in debt and things only seemed to get worse (it's a long story). In fact, the reason I survived that big mess was because of something boring I was doing on the side. You see my dad has been a real estate investor all his life. I grew up thinking that real estate was the only conservative investment. So while I was tinkering with shiny objects, I also decided I would buy apartment buildings like a grown-up the way I was taught. Admittedly there was some luck involved, but the buildings I bought during those early years ended up yielding about 500 percent return in less than 5 years—enough for me to sell them and bail myself out of the big mess I had made. The whole thing was a big lesson for me. Sure I saw cash flow from those buildings but I only truly appreciated the equity growth that had occurred at divestment. It was a real eye opener. Too bad I had to spend it all paying off the sins of bad decisions made by me and my management team. This all happened pretty quickly after residency so I was fortunate to have plenty of time to recover and re-build myself. When I retired from medicine and became a full time investor 4 years ago, I still had to control my impulses. Shiny objects existed not only in the business world but with investments as well. I made some stupid investments in exotic things early on as well but quickly learned that the only asset class that was consistently making me money was real estate. I had to keep repeating a mantra to myself that I continue to do every day: "boring is good". There is nothing sexy about working class apartment buildings. You're not going to brag to your friends about owning them or drive by them with a ton of pride. They are often ugly and in areas you might not even want to drive through. But in the right hands, they consistently make money. In many cases, the returns themselves are quite sexy. My lifetime annualized returns on real estate are probably 40-50 percent all in. So, even though it seems boring, every year the vast majority of my investable income goes into apartment buildings. Do I invest in riskier stuff? Yes but it's calculated. 10-15 percent of my investable assets now go into things that could potentially create a meaningful change in my quality of life. What's a meaningful change? Well, it's going to be different for everyone but it usually means adding some zeros to your net worth. On the other hand, I approach those investments knowing and being ok with the possibility that there will be no return of capital at all—like the Maserati I bought last year. There are some people, however, who make their living entirely on the asymmetric side of the investment world. This week's episode of Wealth Formula Podcast features one of those guys: Jonathan Hung. If you are curious about the world of angel investing, make sure you tune into the show!