A friend recently commented how they were feeling blue for being on the sidelines while observing execs from a small gold company ride their stock options up to big $ winnings. He was down on himself for observing this ‘action’ and not having the moxie and initiative to be partaking as well. He was looking for some sympathy which I was unable to summon.

My take on speculative investing opportunities with potential for massive winnings (and losses):

  • Incentive to participate in this arena is that a possible outcome is life changing money (being money that gives you choices you do not possess today).
  • Capital that makes its way into these deals has acknowledged that earning 11%/year via a diversified and liquid index fund over the past 5 years is nice….but ultimately an unacceptable result. Money here is happy forgoing characteristics like transparency, liquidity and diversification in exchange for a chance at a super charged return resembling lottery winnings.
  • In order to make a meaningful sum that can conceivably change the trajectory of your life, you must invest a meaningful sum. Here’s where things get very easy for me: I could never carve out a quarter, or half, of my portfolio to participate in a deal where permanent loss of capital was a possibility. Just plain not interested. Doesn’t strike me as a good idea (for me). And yes, people win at this sometimes, and I won’t be in the club.
  • So, the pivot is to make a small investment. Only now if it goes up 20 times — it won’t change your life. So, you’re doing it for fun and acknowledge it’s very likely not a game changer if you win (you won’t retire 3 years earlier, buy your kids homes, donate 6 figures to a charity etc.). And here is where it gets really simple for me again: investing in a small venture that won’t change my life is around ‘low/medium’ on my personal fun scale. With only a finite amount of time to consume fun — for me that time is reserved for the ‘high / extremely high’ fun activities only. For some people, investing in high risk/high return deals is their definition of good times — and I don’t contest this assuming it works for them on a sunny Saturday afternoon.
  • Often people collide with an ‘opportunity’ via serendipity and someone they know who is involved. Reminder in this situation: simply knowing someone who is involved does not qualify as a proclamation of ‘all clear’ re: free money. And yet, continued plodding with that boring portfolio can seem unbearable when you are close to an (alleged) surefire winner. Admittedly it is a very hard instinct to resist, which I have lived the reality of….and hence the purpose of my comments here.
  • It’s a small control group, but in my 24 years I have seen some small private deals work great (pet insurance, a downtown warehouse, cannabis 1.0) while the vast majority have failed, or been a wash (apartment building partnerships, Howe St. junior ‘anything’, a knapsack company). And usually after the projected investment timeline has stretched from 3 years to somewhere north of 10. At which point fatigue and misery are the only lenses you can see things through.
  • Small ventures being financed and flourishing in the world as their innovation creates value for people is capitalism at its finest, of which I am a big fan. Unfortunately, these types of investments often derail the life plans of their investors – many of whom had plans that could not absorb a meaningful loss, or prolonged lack of access to funds.

So chase the lottery outcome and speculate for fun —– but only if it really is, like….SUPER fun. Otherwise, compounding a sensibly diversified portfolio can free up a lot of time for the good stuff + get you where you need to be.

This publication is solely the work of Jordan Kenna for the private information of his clients. Although the author is a Manulife Securities Advisor, he is not a financial analyst at Manulife Securities Incorporated (“Manulife Securities”). This is not an official publication of Manulife Securities. The views, opinions and recommendations are those of the author alone and they may not necessarily be those of Manulife Securities. This publication is not an offer to sell or a solicitation of an offer to buy any securities. This publication is not meant to provide legal, accounting or account advice. As each situation is different, you should seek advice based on your specific circumstances. Please call to arrange for an appointment. The information contained herein was obtained from sources believed to be reliable; however, no representation or warranty, express or implied, is made by the writer, Manulife Securities or any other person as to its accuracy, completeness or correctness.