Besides the fact that there’s a massive generational wealth transfer underway, another reason why I’m not too worried about the financial future of our kids is because they are much more financially savvy than we once were.

Thanks to the internet, there is an endless amount of free information to consume. The information uptake compared to when I was a kid in the 1980s (pre-internet) must be 1,000X greater. Further, the ability to invest smaller sums of money is much easier and access to once unaccessible deals is much more available.

It used to cost $200 to trade a stock. Now you can build a 30 position portfolio for only $7.95 through Motif Investing. You used to have to spend $500 to buy Microsoft Excel software to help track your finances. Holy crap! Now you can just sign up for Personal Capital and manage your net worth and analyze your investments for free. Those who’ve taken advantage of such democratization have tremendously outperformed those who couldn’t be bothered.

Given the stock market is at an all-time high, here’s an interesting question I received from a 13 year old cryptocurrency trader who wants to know what financial mistakes to avoid. Perhaps you can give this middle schooler some advice after I’m done as well.

Most people are leaving a ton of money on the table because they aren’t taking time out for deep thought. The people with a Financial Samurai mindset think in derivatives to maximize their financial situation, while those without just see the outcome for what it is and nothing more.

Let me explain with two examples. Remember, this is a personal finance site that emphasizes financial optimization. You can achieve financial optimization and XYZ. They are not mutually exclusive.

As part of their 10 year anniversary, San Francisco-based LendingClub reached out to me to sponsor an overview of their latest initiatives. It’s been over a year since I wrote about P2P lending, so this is a good time for an update. All thoughts are my own.

Before 2007, the world was quite different. There was no such thing as an iPhone, blogs weren’t very popular, and I was still in my 20s. Sigh. It was around then that I started to learn more about the peer-to-peer industry given both LendingClub and Prosper were born in San Francisco.

When the financial crisis hit a couple years later, I remember getting a rubber chicken sandwich downtown with a P2P executive who told me that based on their lending book, those who invested in 100 or more A-rated loans didn’t lose money despite the collapse in the real estate and stock market. I was intrigued since about 35% of my net worth just got crushed.

Even though the defensiveness of a well-diversified portfolio was intriguing, I never fully went all-in on P2P lending because I was too sensitive to people not paying me back. It’s one of my financial pet peeves, along with people who vote to raise taxes on other people without paying more themselves.

LendingClub has been through a lot over the past 10 years – successfully IPOing in 2014 on the NYSE to ousting its founder and CEO in 2016 due to faulty loans when they first started out, to expanding into small business lending and auto loans.

LendingClub was founded on the premise that an online marketplace powered by technology would operate at a lower cost than traditional banks, and those savings would be passed on to borrowers through better rates and investors through stronger returns. They’ve done just that. 

After 10 years, my $60,000 investment in a private gin company finally paid dividends. Initially, given the company was sold for about $49M after expenses and I had invested in the company at a $10M post money valuation, I was thinking I had made a ~3X return ($180,000). Since over time shareholders get diluted with subsequent funding rounds, I thought that was a reasonable assumption.

Well it turns out I didn’t come close. Instead, here’s what I got:

Gross Proceeds: $98,425.88
Federal Withholdings: $0
State Withholdings: $6,523.82
Net Proceeds: $91,902.07

What the hell!? After almost 10 years, with $98,425.88 in gross proceeds, I only made a 64% return on my money (1.64X). Further, I had ZERO liquidity and lost hope for years that I’d ever get my $60,000 back. Doing the math, I only made a 5.1% IRR, barely better than my guaranteed 4.1% 7-year CD that just expired.

So where did all the money go since the company was sold for 5X what I bought in for? Based on an internal document I received, we had to pay a lot of banker, lawyer, escrow, accounting, and general administration fees. We also had to pay severance packages to all the employees (rightfully so) who were made redundant when the parent company took over. But there must be something else I’m missing, which I’ll investigate further.

Despite the missing money, I consider myself LUCKY to get any money back because most startups fail miserably. Before the buyer announced the acquisition, I had already written off the $60,000 because shareholders had never gotten a dividend and the growth target dates kept on getting pushed out. My concern was the company would turn into one of those zombie companies with just enough growth to maintain EBITDA break even, but never enough growth to become an attractive acquisition target.

When the purchase price was announced, my write-off expectation transformed into greed. And now with the payout, my greed has turned into selfish disappointment.