What I Learned After a -97% Drawdown in the Stock Market
What a 97% loss taught me about investing, risk management and the illusion of conviction...
Hi, Investor 👋
I’m Jimmy, and welcome back to another edition of our newsletter. Today’s post is a personal one - and a bit painful to write.
We’re revisiting an investment thesis from the very start of my career. The stock dropped 97%, and the experience became one of the most important lessons in my journey as an investor.
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I once held a stock that dropped 97%. And I held it almost to the end.
At the time, I had just started my career as an equity research intern at a long-only fund.
It was my first real exposure to the buy side, and I was hungry to prove myself - to have a “high-conviction” idea that could stand out.
It’s not easy to admit this kind of mistake…
But if you spend enough time in the market, you’ll eventually go through something similar.
The market is a machine built to humble you - and it doesn’t care how well you prepared. It only cares how well you handle being wrong.
My dad used to say:
“It’s better to learn from someone else’s mistake than from your own.”
With that in mind, I decided to write this piece. If what I went through helps even one person avoid the same path, it’ll have been worth it.
The market charges a high price for certain lessons - and this one nearly wiped me out. At least in this position.
So the real question isn’t how it happened. It’s “what did I learn from it?”
The Setup: Everything Looked Right
The company had just gone public.
It was young, “disruptive,” and full of promise.
The stock soared 42,5% in its first month and dropped 26,7% in the second.
That’s when I bought in.
But I wasn’t chasing the hype. I genuinely believed I had done everything right.
I followed the playbook step by step:
Read all available filings (10-Ks, S-1, earnings reports)
Listened to every earnings call from the past two years
Spoke with investor relations three or four times
Built a valuation model assuming inorganic growth via M&A
Estimated a seemingly conservative target price
Attended industry panels, read every piece of news I could find
Talked to bullish sell-side analysts and buy-side investors with large positions
Even spoke with direct competitors
It was my first real “call.” I was confident (maybe a little too confident).
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The Drawdown:
In the beginning, the thesis still seemed intact - at least in my head.
“Just be patient,” I told myself.
“The market doesn’t get it yet.”
The stock dropped 40%
Then 60%
Then 80% (!!!)
And I kept holding…
Rereading old earnings calls, tweaking my spreadsheet, and looking for a new story to justify why I should stay in.
At some point, I stopped analyzing and started hoping.
Reopening The Wound:
This week, I stumbled on the original thesis.
A Word doc I had saved in a folder called High Conviction (yes, that was the actual name).
Inside it was everything: assumptions, comps, modeled synergies, and a detailed scenario where M&A would drive rapid scale.
My target price - with “margin of safety” - felt bulletproof at the time.
Reading it now, I felt like I was watching a younger version of myself trying to sound professional, when I was really just packaging wishful thinking into Excel.
That’s when it hit me: the market wasn’t the problem. My process was.
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Where I Went Wrong:
Looking back isn’t easy.
It hurts your pride, your ego, and your illusion of control.
But the more I reflect, the more obvious the mistakes become…
I treated M&A as guaranteed.
In my base case, the company would acquire smaller players, integrate them seamlessly, and unlock synergies.
I didn’t consider what would happen if capital dried up, or if execution failed. It did - on both fronts - and the thesis unraveled.
I believed in the story without validating the facts.
Investor relations talked about an “integrated platform,” “ecosystem synergies,” and a “scalable flywheel.”
It sounded great. But much of it didn’t even exist yet. It was mostly PowerPoint. I took those buzzwords at face value - a costly mistake.
I ignored the loudest red flag.
A direct competitor told me, word for word: “This company is a house of cards. Our segment is brutal. They’re selling dreams - and people are buying.” (!!!)
I heard it. I understood. But I chose to ignore it.
Deep down, I wanted to be right more than I wanted to be careful.
The Real Mistake:
The real mistake wasn’t the investment itself.
It was the process that led me there - a process that looked rigorous on the surface but was built on shaky ground.
I had all the pieces: earnings calls, valuation models, industry research, a detailed thesis.
But I lacked the most important one: skepticism.
I didn’t question my assumptions. I didn’t pressure-test downside scenarios.
And when the facts started to shift, I didn’t adjust. I just held on, hoping the market would come back to me.
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What I Learned:
Here are the lessons that stuck with me - and changed how I invest today:
Don’t confuse a good story with a good business.
“Ecosystem,” “synergies,” “flywheel,” “platform” - these are just words.
Often, competitive advantages exist only in the pitch.
A good thesis with poor execution is still a bad investment.
The market doesn’t pay for potential. It pays for delivery.
If the company can’t execute, the thesis doesn’t matter.
Always seek the opposing view.
Talk to skeptics. Talk to competitors. Talk to ex-employees.
Understand what could go wrong - before you commit capital.
If the valuation needs perfection, it’s already broken.
If everything must go right - margins, growth, access to capital - then you’re not investing. You’re betting on a miracle.
If you’re hoping, you’ve already lost control.
Conviction without revision is just stubbornness.
If you find yourself praying for a rebound, you’ve already stopped thinking clearly.
Closing Note:
Losing 97% was painful…
But it was also one of the most important experiences of my investing life.
I no longer obsess over how much I could make. I care more about whether the thesis holds up under pressure - and what would make me walk away.
Ironically, what saved me back then wasn’t insight or conviction - it was position sizing. When we initiated the position, it represented less than 1% of the total portfolio.
The damage was emotional, not financial. And that was enough to keep me alive to invest another day.
This time, hopefully, with a better process.
Thanks for reading all the way through.
What did you think of the story? Any guesses about which stock this was?
Feel free to reply, share your thoughts, or tell me about your own worst investing mistake. I’d love to hear it.
Cheers,
Jimmy
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Great story, I appreciate the insights!!
Thanks for sharing, totally relatable, great post-mortem