It was the largest technology investor in the world.
In 2017, SoftBank founder Masayoshi Son raised $100 billion for his Vision Fund.
He invested more than $20 billion in companies like WeWork and Didi.
And a short time later, Son deployed about $80 billion into startups.
However, things didn’t turn out so well.
Many of his investments were made in companies that were unprofitable.
So, in 2019, when Son tried to raise another $100 billion for the Vision Fund 2…
His foreign investors passed.
Game Over
SoftBank ended up investing $56 billion in Vision Fund 2 itself.
It focused its investments on AI-based technology.
The Vision Funds eventually had more than 470 companies in their portfolios.
But in January 2020, the wheels started to fall off the cart.
Many of the SoftBank-funded startups began cutting their staff.
By May 2020, SoftBank reported a loss of $13 billion for the first quarter of the year.
The loss didn’t slow Son from investing more capital.
In fact, during the peak of the 2021 bull market, he was doubling down.
He kept investing in startups and unprofitable technology companies with absurd valuations.
But Son’s spending spree came to a crashing halt in 2022…
Early last week, SoftBank reported its quarterly results — and it was a disaster.
Wipeout
The Vision Fund erased more than $50 billion worth of gains from its peak.
Vision Fund 2 was also deep underwater — down $11 billion.
For the first six months of 2022, SoftBank was showing a $23 billion loss.
And Son wasn’t the only one who got kicked in the teeth by the 2022 bear market.
Tiger Global Management, which also invested in startups and tech stocks, was down 50%.
And Cathie Wood’s Ark Innovation ETF was down more than 57%.
How did very intelligent investors — with years of experience — wind up losing so much?
More than 50 years ago, Ben Graham, Warren Buffett’s teacher, provided the answer…
1 Question
Graham said:
The really dreadful losses always occur after the buyer forgot to ask ‘How much?’
When Son, Tiger Global and Cathie Wood invested, they didn’t bother asking about valuations.
Instead, they poured money into companies at nosebleed valuations.
But the fundamentals of these companies were priced on hopes and dreams.
And at the end of the day, price is what you pay, value is what you get.
No matter the state of the market, that never goes out of fashion.
That’s why these big investors ended up with losses in the tens of billions of dollars.
But Alpha Investors have been able to avoid disastrous wipeouts.
Because we’re never caught up in hype, hope or the dreams of a business.
This approach kept me miles away from even considering recommending companies such as Peloton, Roku and DocuSign.
I never strayed from only buying stocks where I was getting more value than I was paying.
Throughout my 40-year career, I’ve learned there’s no substitute for valuing a business.
And I value companies through old-fashioned variables — like earnings, cash flow and revenue.
That’s why Alpha Investors sleep better at night while their brokerage accounts grow.
And if you’re one of them, you can check out the great businesses we have in the Alpha Investor portfolio right here. Some of them are trading at even better bargains than before.
If you’re not an Alpha Investor yet, it’s not too late to join the community! You can find out how to sign up right here — so you can access our portfolio, too.
Regards,
Founder, Real Talk
