How My $100M Trade of A Lifetime Led to Career Complacency

May 4

There are 25,000 households in the US worth over $100M who are self-made.

The future $100 million dollar households shouldn't just be those who grew up around the right people in the right neighborhoods. Several of my mentees from diverse backgrounds are millionaires by age 30 and own their companies.

They are on their way to $100M careers!

In fact, of all $100M households, 35,000 in total, only 10,000 inherited their wealth. And most (90%) of wealthy families run out of that wealth by the 3rd generation. Being self-made is part of the DNA of $100M careers.

It’s not about where you live, or what you start with.

You just need to know the rules of the game… the rules I ignored for too long.

I broke in and then missed my move to phase 2.

I first saw someone make $100M with my “Trade of a Lifetime”

It was June of 2000. Markets were rocketing higher every day. A buying frenzy.

I recommended we bet $2 billion that semiconductors would go down.

I was betting against everyone else. I knew my billionaire boss had hired me to get this ONE trade right. I was as terrified of pulling the trigger, yet I was certain in my conviction.

If you’re too early, you lose hundreds of millions. Too late, you lose hundreds of millions.

One morning, I told my boss: Everything in semis is going down 80% from here.

We should sell all the semiconductor stocks we owned and go short (bet they’ll go down).

He acted boldly, selling $1 Billion in semis and shorting $1 Billion, for a $2 billion swing in under 2 weeks.

My partners called me, yelling, saying I was crazy and would ruin our firm, Palantir Capital.

Within days of our trade, semis started going down - and declined 80% for a 5X return on our short position.

My hedge fund boss made over $100M personally on that ONE trade.

The year before, I’d made my previous boss $24M by running the #1 fund in the world.

I had what it takes to make big money, even if it was for others...

How I got started in investing

My dad grew up in a depression-era household. He taught us values of frugality and making money. In the late 70s and early 80s, to encourage recycling, California was paying 25 cents a pound at aluminum can recycling centers. For 6 years, my dad and I picked through our neighbors’ trash, collecting aluminum cans to recycle. Doing this, I saved up $1,800.

I started investing when I was 16, and by the time I was 20, I turned $1,800 into $320,000. How?

My dad would give me 4 stocks to look into. I did my research, selected one and invested. United Artists was bought out 3 months after I purchased it, for a 4X return ($1,800 → $7,200). Then I bought FHP, at the time a tiny HMO that grew rapidly, for another 5x return ($7,200 → 36,000), and finally I bought Novell, a networking software company that went up more than 10X, such that, after taxes, I had more than $320,000 in the stock market as a sophomore in college.

Investing was fun and easy!
I took that bright future and hit pause. It was too easy. I outsourced the investing to my dad. I went to parties, had fun and became a horse trainer.

I lost focus.

My dad became obsessed with one biotech stock. He was convinced it would be the holy grail - a blood substitute with no blood types. Then my mother died. Grief-stricken, my father kept buying more, and more, even borrowing money on margin to buy more. Then biotech along with Alliance Pharmaceutical, crashed so fast that the stock brokerage couldn’t sell the stock fast enough to pay down the margin debt balance.

I lost the entire $320K, went $30K in debt.

In a financial bind, I refocused on investing, taking $30K in debt and $30K from a horse I sold, doubling that to $120K, paying off $30K to have $90K free and clear, all in the first 6 months at USC MBA.

Here I was really lucky on timing. It was 1992. We were exiting the 1991 recession.

Risky tech stocks get obliterated during recessions. They have volatile or zero earnings and can go bankrupt. Coming out of recessions, these cheap tech stocks have strong growth prospects, as companies invest in tech to grow efficiently.

Investing in high growth stocks when they are cheap gives you double upside, as valuations (multiples on revenues and earnings) go up while the company’s numbers (sales and earnings) go up.

Similar to 1982-86 (I was 16 and started investing right when we exited the last big recession), I invested in small cap stocks, with strong results once again.

My best friend said: “You know, people would pay you to do that!”

She planted the seed.

After my MBA, I worked for billionaire “junk bond king” and pardoned felon Mike Milken. Our offices were regularly stormed by the SEC. The stories of the “little black book” that kept everyone’s secrets and not being allowed to leave the office for lunch are all true!

Interesting quirks aside, Milken was a genius. Thanks to Milken’s advice, I kept taking on more challenging jobs, simultaneously instead of sequentially. At Farmers’ Insurance, I ran a $1B bond fund, $300M energy fund and a $350M tech fund all at the same time, as the most junior person there.

Next, I joined Nicholas Applegate where I launched and ran the Nich App Global Tech Fund which was up 630% in the first 12 months.

And I made my billionaire boss $24M from his $4M investment. But I was only paid $135K. So I left to join a hedge fund where I made my trade of a lifetime, and made that boss $100M.

What was next after my Trade of a Lifetime?

Here’s where I went off track. The logical next steps to my $100M were: (1) Launching my own fund or (2) Joining a tech startup in silicon valley.

I had a phenomenal track record and hedge funds were popular, so I could have raised and run a large fund. Or I could have gone to Silicon Valley where tech stocks were dirt cheap in 2003 and made a fortune there.

Instead, I played it safe as an employee - not an owner. It took me another 14 years to make the move to Silicon Valley. I made it into the startup world when the lure of getting involved in blockchain was too great.

I heard about Web 3 from my mentees, dove in deep with research and investments. It felt like the early days of the internet. I’d missed the transition to internet startups in 2003, but made the successful leap to Web 3 startups in 2018.

My waiting wasted 14 years of potential wealth and career compounding.

If your bank account isn’t going up, it’s going down.

My friends on similar paths didn’t make the same mistakes, and are worth over $100M. But, I finally made it to building equity, as an advisor, operator and most importantly, OWNER.

I’ve proven my ability to generate huge returns. Making $100M in one trade was the time to capitalize on my achievements to push my career to the next level.

But instead, I took my foot off the gas of my career.

I played small. Got complacent. Don’t make the same mistake.

I realized I was on a path of the 3 B’s: Break In, Build Equity, and Break Out, but I got stuck in Breaking In. This path is simple but far from easy. It requires different skills at each phase, and you are working so hard in the breaking in phase, it’s easy to get caught there.

Follow the 3 B’s for a high leverage $100M career:

1. Phase 1: Break In:

Get a job in investment banking, management consulting, or investing.

Here, you don’t need a certain zip code or background (although they can help). What you need most is to know the path and options early enough to get the grades, to be able to break in. You can also break in to a high leverage career without going the investment banking or management consulting route via working at a great startup.

You can break in later too. I didn’t have the grades and was able to break in later, using my MBA at USC.

2. Phase 2: Build Equity

Get paid for performance, not based on your salary, but based on the inherent leverage in the business.

When working as a money manager (VC/PE/Hedge Funds), phase 2, building equity, is being paid mostly in carry, i.e. based on how much money you run multiplied by your performance. When working in startups, phase 2, building equity, separates your time from money earned.

In Phase 2 you can build multiple paths of wealth generation. You earn equity in your full time job. You also invest in other companies. Perhaps you are a scout or part-time venture partner for a VC firm. You can be on company boards, giving your time and advice, yet your financial returns are mostly based on the work of management and employees of those firms.

If you think this sounds far-fetched, my two friends who hit $100M from diverse backgrounds both live the above model (running companies, on boards, working with VCs).

To make $100M, you need to build equity. You need to enter Phase 2. But you don’t necessarily need to go further. Bill Gurley stopped at Phase 2, earning carry at Benchmark, and is worth billions.

3. Phase 3: Break Out

Build your own firm, either a startup or asset management company.

The very wealthiest in the world, they all went to Phase 3. Elon Musk. Bill Gates. Warren Buffet. Multiple female billionaires like the Sarah Blakely, CEO of Spanx. Founders whose startups grew to some of the most valuable companies in the world.

Phase 3 is also the most risky, and the most littered with failed startups and lost fortunes.

If your goal is $100M or even a billion dollar career, your path may not need to take on the risk of entering Phase 3. The key is knowing yourself and your options. Pick the best path for you.