During my stint with a private equity firm, we lost hundreds of millions of dollars because of a simple reason: We could not accept the truth when it was unpleasant.
One of our investments was in a tech company that was blowing up money from day one. It was impossible to not see that the management team was crooked and terrible. Short of outright fraud, they committed every imaginable sin.
But they had only one so-called ‘redeeming’ quality – the founder had a big brand. So we rationalized that it didn’t matter – the founder was competent to raise more money. And he did that, only to blow off the freshly raised money just as quickly.
You did not have to be a Warren Buffett to see that this was going to fail. But there was a problem – to accept that truth, we had to also accept that we had made a mistake.
Just a year earlier, we would have told people who put money in our fund that we made this fabulous investment. So how do you now go and tell them that you were wrong? That was the problem.
We did not want to acknowledge our mistake. And the only way out was to deny the truth.
But the truth is obstinate. It does not go away just because you don’t like it. It stays. And in the end, it always wins, no matter how long it takes.
Because we denied the truth, we put in more money into the company. And then some more, and so on.
In the end, we lost more than twice the money that we had initially invested. Just because we did not want to accept the truth.
Life is not that complicated. Sometimes, even investing is not that complicated. But what makes it complicated is denial.
If there is one lesson I have learned over and over in life, it is this: Whatever situation you are in, there is always ‘one truth.’ Sometimes we don’t know it, but more often, we don’t like it.
It doesn’t matter. Accept it. Acknowledge your mistakes – who doesn’t make mistakes?
But there is only one mistake you should never make – denying the truth. Don’t do that. Ever. It will kill you. 100%. No exceptions. Guaranteed. So please don’t do it.