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When we think of billionaires we think of unadulterated success. But the fact is that many billionaires go on to lose it all. Whether it’s bad luck, bad investments, or pure bad intentions, billionaires are far from infallible, and there are lessons we can draw from their mistakes.
Billionaires might possess the aura that they are different from the rest of us but that is far from the truth. They may have hit it big but they are just as prone to the same mistakes as the rest of us. When billionaires fail it is often spectacular. And this provides an opportunity for us mere mortals to learn from their errors and apply those lessons to our own lives and investments.
1. Milton Hershey — Know When to Quit
Ever lost the poker pot because you didn’t know when to fold? Well, you’re not the only one. Milton Hershey may be most famous for owning the only town that skipped the Great Depression, but he also loved to take big risks. This usually worked and helped him build a chocolate empire and leave one of America’s greatest philanthropic legacies. However one time, his risk-taking nearly cost Hershey his place in history.
During the height of America’s Cuban sugar craze, Hershey made a bold gamble. He believed that he had cracked the Cuban sugar market and found a way to circumvent the sugar trust using sugar futures. The idea was to purchase large amounts of sugar at a significant discount to gain control of a raw material that was essential to his chocolate business.
The problem? Like the many American’s who collectively invested $1.2 billion in the Cuban sugar industry, Hershey was taken in by the glamor of the island. He bought sugar futures despite not understanding that most traders had no interest in the product itself but were instead just trading contracts. He even turned down an offer to purchase his sugar futures. When the house of cards came tumbling down Hershey was badly hit.
He was forced into a $10 million mortgage and $20 million bond issue from the bank. That amounts to upwards of a half-billion dollars today. But that wasn’t the worst of it. The bank appointed an overseer to his company and Hershey had little patience with being managed — especially by someone he considered a bean counter.
Despite not knowing when to quit, Hershey was eventually able to recover his fortune, in large part thanks to the loyalty of his workers, who redoubled their efforts when they heard of his financial distress. But it could have been the end to his empire.
2. Allen Stanford — Cheaters Never Prosper
(In The Long Term)
Many of the billionaires who go bust did so not because of bad decisions, but bad intentions. There are few better examples than the now infamous Robert Allen Stanford.
Stanford made his fortune in Antigua with the Stanford International Bank. He became an Antiguan citizen and went on to be the largest employer on the island. He was even the first American to be knighted by the Antiguan government.
Stanford was a key figure of the island, permeating many aspects of the island’s daily life. He even ran a cricket match in 2008 with a $20 million prize against the English cricket team, which his side went on to win by ten wickets!
The problem? Stanford’s fortune was built on lies. Much of it came from his international bank which turned out to be a Ponzi scheme. Stanford was promising inflated returns but rather than investing his client’s money he had the money sent to his private and business accounts, which he then used to fund his lavish lifestyle.
When he was finally sentenced in 2012, investigators were unable to account for 92% of the $8 billion his bank claimed it had in assets. Stanford was convicted of 13 separate charges and is serving a 110-year prison sentence.
The lesson? Dishonest decisions can bring short term gains but come with long term consequences. And the irony is that Stanford would still have been richer than most people can imagine if he had done business honestly.
3. Seán Quinn — Sometimes It’s Just Bad Luck
Despite the fact that billionaires rarely go bust for the same reasons as the rest of us occasionally a combination of bad-luck and substandard planning can prove deadly. Take the example of Seán Quinn. Once the richest man in Ireland, he built an empire worth more than $6 billion in real estate, construction, and insurance. Until the financial crisis hit.
Quinn’s empire was built on the Irish property bubble and when the 2008 financial crisis hit he was caught in the crossfire. To make matters worse, Quinn’s family secretly held one-quarter of the Anglo Irish Bank, which was nationalized in 2009, ruining Quinn. When he finally filed for bankruptcy in 2012 he was over $3 billion in debt.
4. Learning From Others
The hard truth is that failure is a fact of life. Even wildly successful businesses collapse and all we can do is plan for the worst and hope for the best. The best thing that we all can do is learn from the mistakes of others and find ways to apply those lessons to our own lives.