Kevin O'Leary Reveals He Lost $750K On A Friend's Business – Here's How To Avoid Letting Emotions Derail Your Investments

Kevin O’Leary, aka ‘Mr. Wonderful,’ the entrepreneur on “Shark Tank,” shared a painful lesson learned in business: losing $750,000 by blindly investing in a friend’s startup. Speaking during the 10X Growth Con 2021 alongside Grant Cardone, O’Leary candidly shared how his emotions overcame his otherwise sharp instincts on finance.

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“I gave him $250,000,” said O’Leary as he explained the start of his ill-fated investment to the audience. Just 60 days later, his friend returned for another $500,000 to keep things going. He had a gut feeling telling him not to do it, but O’Leary decided to support his friend again. But it all went sour. The result? A total loss. “Sixty days later, he comes back and says, ‘I need another $500,000 to make this work,'” O’Leary lamented. “A moment of silence for that money.”

He said this would haunt him for the rest of his life, citing, “This is one mistake I’ll take to my grave.” He reflected on ignoring his instincts, saying, “I never should have given that guy a single penny. It was a textbook error where I let my emotions cloud my financial judgment.”

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Experts in behavioral economics – an area of study that examines how human psychology influences financial decisions – would no doubt agree with O’Leary. Emotions are often a big trap for investors and decisions are made out of fear, greed, or even loyalty rather than rational analysis. 

A common pitfall is confirmation bias, in which investors actively seek information supporting their preconceived beliefs and ignore information suggesting otherwise.

The other key barrier is risk aversion, whereby the fear of losing money outweighs the potential for benefiting from money in profitable investments. It can lead to overcautious decisions, missing out because one fears taking calculated risks.

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To balance these biases, the best approach is to slow down any impulsive actions or decisions. “Take your time before acting; don’t act on impulse,” suggested O’Leary. Gathering all the information possible and seeking professional advice where necessary may further support this approach.

O’Leary believes in a thought-out investment plan. “One way to avoid emotions is by creating an investment plan and sticking to it,” he urged. This would pertain to a due diligence checklist or even time frames for investments set ahead of time so that the decisions made would not be gut feelings.

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It is a disciplined approach that includes a margin of safety complemented by risk-reducing strategies such as purchasing securities below their perceived market values and diversification strategies. Through diversification, the rest of the portfolio will not be obliterated in case one investment fails.

Mobile investment apps can also help investors put their money to work. Acorns, for instance, does this by rounding up everyday purchases to the nearest dollar and putting that extra change into a diversified portfolio. This way, investors do not get emotionally attached to every decision and can grow their wealth.

Finally, O’Leary suggests taking some time out – the cooling-off period – before investing. “Sleep on it,” he says. Emotions will settle and decisions can be made with a clear head.

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