Stock Investment Lesson - "Investing in Who"
I've gotten a number of DMs asking about investment advice, stocks I like, or what I do for a living. I figured I'd share an important lesson that I learned, and that if I had learned it earlier it would have both made me money, and more importantly saved me from losses.
For background, I am not a financial advisor. I'm a serial entrepreneur who built a million dollar company in my early twenties, lost everything, went back to school, and then took my lessons from my losses and rebuilt from the ground up. I own multiple companies now, almost all started by myself, but I have also bought and sold companies as well. I don't think school is "necessary" for success and I think you will get out of it what you put in to it, but I'm still very glad I went back regardless of whether or not it contributed to financial successes.
When I was young and I would talk with friends about business and business ideas, we tended to discuss an idea, a concept, or an industry. Whoever had the best business idea, we would then talk about "doing" that idea. It never went anywhere though, and eventually I learned the first part of the "Who" lesson unintentionally. They never followed through, and I would be frustrated that it was all just talk. My success started when I just started building a business for myself. I didn't really put much thought in to it other than giving myself kudos for "doing" it.
It wasn't until I rebuilt everything, had sustainable success, and was then able to invest in other things, ventures, and people that the lesson hit home. The things and people that I invested in that did poorly had NOTHING to do with the idea or the product. They were actually all great. The one common denominator with an investment going poorly was WHO I invested in or with. The wrong people will give up when it gets tough (and it ALWAYS get tough), they celebrate too early, they clock in and clock out. The right people just have that "it" in them. Je na sais quoi is a good term from French that means something along the lines of "that thing you can't quite put your finger on" (I don't speak French, but I'm close enough and if I'm not you get the meaning). The right people don't talk - they execute. They don't celebrate the lead, they celebrate the close. A 40 hour work week is part time for them. And most importantly, they do NOT have "quit" in them. When it gets tough, they dig their heels in further. They will literally do everything in their power to move the world around them instead of being moved by the world when it comes to their business.
How can you apply this to stocks? I'll give you two examples of CEO's (Who's) that I've invested in and one that I got wrong by realizing it too late, and one that I got right by realizing it early. Before I get in to them though, I want to clarify one point about this lesson. This is identifying WHO is a good CEO/partner/friend, that should lead to a good investment. This is NOT identifying who is a good PERSON. I think Steve Jobs was a horrible person and incredibly unethical. I think he was a ruthless thief...but damn was he an incredible CEO.
Case #1: Elon Musk and Tesla
When I first started reading about Elon, something seemed off about him. I thought he was selling BS and I didn't want any part of it. I completely missed Tesla because of that. It wasn't until around 2017/18 that my mind started to change about him. He was being heavily shorted and he made some comment about putting a bed in that Tesla factory until he got production to where he wanted. That got my attention and so I started paying attention more to WHO he was. I know this is Reddit and most people hate him on here, but all I saw after that was someone who would stop at nothing to execute on his vision. I probably should have made a more serious investment in Tesla back in 19/20, but I thought I missed the boat. Luckily, I was able to get in Space X about a year and a half ago. I personally think Space X will explode out of the gates (they just signed a $12 Billion compute deal with Google a day or two ago), but I plan to hold long term. Love him or hate him - I think he will go down as one of the greatest operators in history and executes on plan unlike anything I have ever seen.
Case #2: Nasrat Hakim and Elite Pharmaceuticals
I was working on a client's deal who was heavily invested in ELTP and his shares were around 25 or 26 cents a share back in 2017. I looked at the company and it was just a hot mess. A bunch of hopium around a technology that introduced an agitant to pharmaceuticals that would burn your nose and throat if you tried to crush them while using them to get high. The technology was a good IDEA, but it didn't get FDA approval and they had almost no revenue (I think it was sub $1 million at the time.) The client didn't take the advice and I would just look at it every few months as it dropped from 25 to 20 and eventually all the way down to 3 cents.
Then something amazing happened - ELTP started growing revenue and I believe they became cash flow positive around 2020 or 2021. You never really see that from a company that looks like it is on the verge of bankruptcy - especially a company on the OTC. I started reading everything I could on the C-suite. Nasrat impressed the hell out of me. An attorney first and then CEO, he made some incredibly shrewd decisions. He pulled out of all opioids during the massive litigation that was starting around the country against Purdue and other opioid companies. He changed the direction of the company from an "all or nothing" moonshot, to safe and steady generic manufacturer. Then he started negotiating deals, getting shareholders access to larger and larger revenue producing drugs. Lannet Pharma was once a $3 billion market value client of Elite's (and a hopeful buyout partner), was making a move to cut Elite out of the manufacturing side of their deal. Nasrat pivoted and hired Kirko Kirkov to develop an internal sales team. Kirkov was a brilliant acquisition. Kirkov sold more in 1 month than Lannett sold for Elite in a whole year. In another brilliant move, Nasrat sold off 3 drugs to a competitor for some much needed cash, but, at the time, no one knew the details of that full agreement. Nasrat had put a buyback clause in the agreement for the same price Elite was paid, but since he bought it back after the massive inflation post Covid, he essentially was able to buy all the drugs back for around a 25% discount. Due to all of these factors, I really believed in the "Who", and I started acquiring a massive amount of shares. This time, I was proud to have assessed the "Who" so early that I was able to buy shares at the 3 to 7 cent mark. I did have one MAJOR concern though, and it was a big one. The CFO, Carter Ward. My fear when investing in stocks as opposed to real estate deals is that I can never be 100% sure someone isn't cooking the books. This was a tiny company in a lot of trouble, and Carter left the company. That made me very concerned that what if the reason he left was because there was something he didn't like in the books? I've been in a similar situation myself during a stint as a CFO and I know from that experience that when something doesn't look good in the books, it is NOT a good feel and your goal is to get as far away as possible from problematic books. So, as Elite was going through various CFOs in the aftermath, it was making me feel worse and worse. The golden lining was the final moment for me that made me feel great about my investment. Carter Ward came back to ELTP. No CFO would come back to books that had problems in them. It was actually a better sign than if he had just stayed.
Elite has a major date coming up on June 11th where the judge is pushing for an outcome on a patent dispute between ELTP and Purdue. The judge told Purdue to either work out an agreement or he would recommend Elite to file for dismissal, which I read as, "Games over. Figure it out or I'm dropping the case because Purdue doesn't even exist anymore." Closely following that date, ELTP has their annual earnings which will guaranteed be another record breaking year (they broke the record at the 9 month mark already). Top it off with the filing last week of a $26 Billion drug, which, by the estimates of one of the biggest cynics on this board, would be an approximate increase of revenues of about $600 million and ELTP is sitting pretty for an eventual buyout (they hired Jeffries about 10 months ago for M&A) or an uplisting/Spac merger.
TLDR: Who you invest in matters more than what and I'm high on both Space X and ELTP and for those who haven't seen any of my prior posts, I am heavily invested in both.
Long read, but hope it helps give some of you a perspective that I think is extremely important when putting your money in anything.
