One of the biggest problems I consistently observe is people’s inability to control their spending once they start making money or a lot more money. We all know someone who is making the big bucks, yet is just living paycheck to paycheck (see: Scraping By On $500,000 A Year). After three months of grueling work out of college, I decided to buy a new used car. Not only did I get a car that was parked several subway stops away for $200/month, I also got a brand new motorbike!

What kind of 23-year-old dumb ass idiot buys a car and a motorbike when the subway system in Manhattan is so efficient? My base salary was only $40,000 and I was trying to save money by living in a studio with my high school friend. But I couldn’t help but buy the two things I always wanted since high school. Thankfully, I got a bonus which allowed me to max out my 401k and save something extra. But I could have saved much more.

After I left Manhattan for a competing firm in San Francisco two years later, I promised to start fresh and seriously clamp down on my spending. I got word my job was at risk due to the dotcom collapse, so I felt I had dodged a bullet by escaping the east coast. 

Back in 2007, I invested in a private company called Bulldog Gin (11/2009 interview). A friend from William & Mary co-founded the company after several dark years in banking and asked me to invest. At the time, I was making good money as a 29 year old VP in banking, so I figured why not. I believed in his drive and I liked the idea of making gin cool like SKYY did for vodka.

Sometime over the past five years, I started believing I had invested $75,000 in Bulldog Gin at a $10M valuation. When Campari Group announced recently they were to acquire Bulldog Gin for $55M plus an attractive earn-out paid in 2021, I was pumped! I mentally wrote off the $75,000 investment from my net worth because it was made so long ago. After about five years of zero dividends, you start losing hope your money is ever coming back.

When I dug out the capitalization table from 10 years ago, I realized I had not invested $75,000 in Bulldog Gin. Instead, I had only invested $60,000. Drat. $60,000 is still a decent amount of money to invest in a private company, but overestimating my investment by 25% is a egregious financial miscalculation.

I’ve always wondered how so many startup companies could “miscalculate” their finances so badly. For example, in a Startup Podcast episode about the now defunct food delivery company, Bento Now, the founders said one month they spent $70,000 more than they realized. I mean, how does $70,000 just go unaccounted for? But here I was doing the same thing, given $70,000 was roughly 30% more than their budget.

If you’ve ever seen the movie Memento, you realize that one small lie or factual error starts compounding on itself until it becomes one monumental error. What I think happened was I had bought $2,500 in shares in an earlier round from a colleague when Bulldog Gin was valued at only $5M (I think). For some reason, I just rounded up my investment to $75,000. Then I checked with my ex-colleague whom I bought the shares from and he said I had only bought $1,700 worth of shares! See how the errors start stacking up? Thankfully, we had a notarized document of the transaction he PDFed over.

Given Bulldog Gin is selling for 5.5X more than my purchase price, the $13,700 differential in what I thought I invested could end up being a $75,350 miscalculation to my net worth. I like to call my situation an example of financial distortion. This phenomenon is more common than we think. 

Snap Inc. finally went public at $17 and is now worth around $26 billion after a meteoric 45% rise in its first day of trading, followed by an unsurprising fall. With ~1,900 employees almost liquid, funny money capital will inevitably rain down on the Southern California ecosystem!

What’s even more exciting is that Snap Inc. was able to sell stock to the public at a trailing 55X revenue multiple with no profits compared to a 14.5X multiple for Facebook and a 4.5X revenue multiple for Twitter today. In other words, investors either really believe in the growth projections for Snap Inc., and/or the scarcity of big internet/tech deals is forcing investors to pay a premium.

Since most of us do not work at Snap Inc., don’t have spouses who work at Snap Inc., nor were we investors in Snap Inc., we won’t benefit directly from their IPO. However, most of us are logical thinkers who can make observations of how to benefit when the 150-day lock-up period is over and capital is recycled into the community.

The most obvious beneficiary of IPO riches is real estate. We’ve all learned firsthand or from story books how paper multi-millionaires lost everything during the 2000 dotcom crash because they couldn’t sell quickly enough or they didn’t buy hard assets. At least once a week while I was working, the guy who made me a breakfast croissant reminded me how he was once worth $3 million.

Staying wealthy for longer is all about turning funny money into real assets. Money will also flow into cars, fine art, entertainment, and other luxury goods as well. But real estate is where the common person can expect to benefit the most.