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« Financial Independence | Main | Known Unknowns »

Things I Wished I Had Said

In 1980 I was a captain in Uncle Sam’s Air Force stationed on a base near Columbus MS.  I was serving as an instructor pilot, and I had saved a little money.  One of my good friends and fellow pilots had separated from service a few months earlier and had started working for J. C. Bradford, a regional brokerage company.  He was trying to make a living so I invested in an oil and gas partnership J. C. Bradford was encouraging him to sell.  It proved to be a very good tax deduction but never actually produced much oil or gas.  I eventually received one distribution check for about $30, and after the lawyers got through with it a few years later, I received a settlement check for $0.86.  I kept the check.  That remains the single worse investment I have ever made.  Here are a few things I wished I had said before writing that check.

1.  I don't really understand this investment.  Some investments and financial products are quite complex and opaquethus, we may feel uneducated and reluctant to admit that we simply do not understand how an investment works.  In our desire to appear financially savvy, we may go ahead and write the check simply to avoid appearing ignorant of financial dealings.  But most of the financial products that we really need are fairly straight forward and easily understood.  If you feel uncomfortable with a financial product you are being asked to buy, either ask a lot more questions, or walk away.  In 1980 I knew a great deal about flying airplanes but almost nothing about how an "oil and gas partnership" worked, or what would have to happen for me to realize a profit.  I should have walked away!

2.  What can go wrong with this investment?  What is the downside?  In 1980 the oil embargo of the late 70's was still fresh, and everyone assumed that oil prices would continue straight up.  I assumed that anyone with enough oil drilling equipment could punch enough holes in the West Texas landscape to make plenty of money for their "partners."  I was wrong.  Oil drillers could still hit plenty of dry holes, and oil prices did not go straight up.  Plenty of things could, and did, go wrong with this investment.

3.  I really don't need this investment.  In 1980 I knew very little about the concepts of diversification or portfolio allocation.  I did not realize at that point in my life that a good, inexpensive mutual fund would have given me the diversification and exposure to growth stocks that would have proven a far better investment than the one I chose.  If I had simply invested that money in one of the large, diversified oil companies and held on, I would have likely multiplied my money by six or seven times by now.

4.  I am going to think about this a little longer.  If you feel that nagging doubt about an investment you are considering, you should probably think about it a bit longer.  You should probably do a bit of homework.  It may be that the salesman needs to sell the investment more than you need to buy it.  Don't ignore your gut feeling; at the same time, don't completely rely on it either.  Do the research and then make an informed decision.

5.  The fact that you are my good friend and fellow pilot does not obligate me to buy anything from you.  I remain good friends with the gentleman who sold me this investment to this day.  He is a fine person, and I cherish his friendship.  He truly believed that this was a good investment.  He was not trying to scam me.  In fact, he lost money along with me.  But the fact that he was a good friend probably influenced me more than it should have.

6.  No.  This is what I should have said to this investment.  Of course other "oil and gas partnerships" proved profitable, but at that time I had neither the expertise nor time to determine which ones were worthy of my money.  This experience proved once again that hindsight is 20/20, but that lesson does not make the loss of that money any less annoying.

I learned a number of lessons from my oil and gas experience.  One lesson I learned was that ultimately it is more satisfying to safely hit singles and doubles than to swing for the fences and miss.  I learned that it is important to diversify; I learned to avoid complicated investments; and I learned that some investments are better left to others.  I have been tempted by other speculative investments over the years, but while considering them, the memory of this bad investment always reappeared to give me pause.  It may well be that this investment loss has proven to be a net positive for me.  I have also learned that though far from the most important thing, still, money matters!

Fly/Drive Safely

4 September 2013


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