The worst investments of all time are even more interesting because they were made by some of the richest and smartest players active in the market. These failures prove that the smart money is not always as smart as the conventional wisdom holds. Here are some of the worst investments of all time, made across a broad range of sectors and industries.
Joe Lewis is an English businessman who got his start managing his family's catering business and made his fortune as a currency trader. He was ranked 290th on the Forbes' 400 billionaires list in March 2012, with a net worth of $3.8 billion. Lewis gained notoriety in 1992 for his large bet against the British Pound, an event later dubbed Black Wednesday, when that currency declined by 20% in a 24-hour period after the government withdrew from the European Exchange Rate Mechanism. This currency trade made George Soros famous, though Lewis reportedly profited more than Soros at the time.
In late 2007, Lewis started to buy shares of Bear Stearns, a company that was suffering from the initial effects of the financial crisis and its involvement in the mortgage-backed securities market. The stock was still trading above $100 per share when he reported his initial purchase of approximately 7% of the company for $860 million, and he later raised his stake in Bear Stearns to more than 10% by early 2008.
Lewis still held this position when Bear Stearns was acquired by JP Morgan for $10 per share in March 2008, bringing his estimated loss to more than a billion dollars. Even if Lewis held onto his JP Morgan stock, which he received in the buyout, he wouldn't be much better off, as the stock is roughly flat over the last four years.
The Yahoo! Binge
Before anyone even dreamed of "Googling" for information, Yahoo! was the king of the Internet. In the late 1990s, Yahoo! went on an acquisition binge, printing stock to buy companies with little revenue and no profits, as it worried about competitors gaining share.
In May 1999, Yahoo! acquired GeoCities, which hosted a series of personal web pages on the Internet organized into communities. Yahoo! issued $2.9 billion in stock for GeoCities, which reported a GAAP loss of $19.7 million on revenues of $18.4 million in 1998.
In July 1999, Yahoo! purchased Broadcast.com, which was involved in the broadcasting of audio and video content across the Internet. Yahoo! issued stock worth $5 billion for this company, which reported a $16.4 million GAAP loss on revenues of $22 million in 1998.
In October 2009, Yahoo! officially closed down the GeoCities service and referred customers to its own web hosting operation. The operations and technology gained from Broadcast.com has long been integrated into the Yahoo! site, and video and audio broadcasting, once thought to be innovative and revolutionary, is now commonplace on the Internet.
Since then, Yahoo! has been eclipsed by Google and is now the investment world's favorite whipping boy and an example of how not to create shareholder value. The stock is still down about 80% from the peak reached in the late 1990s.
Cisco Flips Out
In March 1999, Cisco purchased the parent company of Flip Video, a maker of hand-held video cameras, for $590 million in stock. The company vowed that the purchase would bring its "consumer business to the next level … and drive the next generation of entertainment and communication experiences."
Two years later, Cisco apparently had enough of the next level and the new generation and shut down Flip Video as part of a corporate realignment.
Caspian Networks started out life in 1998 as Packetcom and offered IP routers and other networking hardware to network carriers. The company raised more than $300 million from various venture capital firms in several funding rounds but could never sell enough products to become profitable. Caspian Networks closed down in late 2006.
Amp'd Mobile was a mobile content provider that leased spectrum from Verizon and other wireless operators, targeting the 18- to 35- year-old market. The company raised $350 million of funding from venture capital firms and other investors through March 2007 and set out to conquer the wireless world, offering services in the United States and Canada.
The business opportunity didn't quite turn out as planned for these investors, as Amp'd Mobile filed for Chapter 11 bankruptcy in June 2007, citing the inability of the company's back end infrastructure to keep up with rapid growth. The real cause of the bankruptcy was the company's decision to lower credit standards to boost subscriber growth. This strategy led to 45% of the company's subscriber base being delinquent in paying their monthly phone bills.
Disney and Go.com
In January 1999, Disney decided to launch the Go Network and compete directly with Yahoo!, AOL and other companies that operated web portals. Go.com would aggregate all the company's well-known brands that operated on line, including ESPN and ABC News. The new network started off well, and in early 1999 and was the fourth-most-visited Internet site in the world, trailing only Yahoo!, AOL and MSN.com.
Despite its popularity, Go.com never turned a profit and after spending hundreds of millions to set up and operate the portal, Disney shut it down in January 2001. The company recorded a noncash write-off of $790 million to cover this and several other restructuring actions related to its Internet properties.
The Bottom Line
The world is littered with the corpses of promising investments made by some of the smartest people in the room and it is clear that we have not seen the last of these high-risk and high-return gambles.