The Lessons of the $SI Bankruptcy
Unedited notes from my internal investment journal
Too much reliance on 13F
In this investment I was way too reliant on Bill Millers podcast interview and his statements about the company. I didn't take into account that his position was tiny in comparison to his overall portfolio and got carried away.
Not enough investigation into possibly failure points
Not using the mental model of failure point analysis in engineering
SI failed because of their exposure to FTX. I did not investigate the depth of their exposure to specific institutions. This was a clear mistake and oversight on my part. With $COIN I did this analysis really well, we forecased a worst case crypto winter and realized that their exposure to one single thing is not that great.
Circle of Competence
I asked the question in the beginning if a bank was in my circle of competence. I had a feeling that the 10K was overwheliming and this should have led me to decline this as not being in my cirlce of competence. This should have been a red flag to jump into the investment too soon. So there must have also been some fraud going on. This needs to be studied.
Got to pay attention all the time
My approach to let things be hurt here because it was obvious that the bank was in trouble had I followed the news. This approach only works for no-brained investments and I need to be aware when the thesis changes. To be aware I have to pay attention.
Customer analysis needs to be better
Also I didn't understand the ECO system perfectly well. SI had way too much exposure to FTX. In addition they were too focused on Crypto while SBV had a lot of money in Venture Capital deals. As these crypto projects went bankrupt, it caused a lot of the loans to be bad.
Be cautious about "rapid" growth
Deposits and business for these banks grew rapidly during 2020 and 2021. This should always be a sign for caution and not optimism. Rapid growth is often not sustainable and can be artifically created. I should have known that. Amazon grew, but steadily and slowly.
My own Exposure too high to one industry
I already had $COIN and never thought to evaluate my opportunity cost of buying $SI. Coin was the much better bet and I thereby also exposed myself too much to crypto. As Ray Dalio stated one should hold 15 stocks that are not correlated.
Wait for No-Brainers
Investing into META was a no brainer. Everyting is making sense there. But with SI there was no worst case scenario analysis done, I got lazy and didn't follow the checklist approach. I got totally caught up in the emotions of thinking I am good at this, but now learned quickly, I was not good at all, but undisciplined.