Season 1,

26: How to Lose Money by Investing in Oil and Gas with Jake Fouts

February 21, 2017

Jake is first and foremost a husband and father of three and he lives about an hour south of the beautiful city of Seattle, in Washington State. He’s gone through the traditional “go to school and get a good job” path and that worked out pretty well; allowing him to travel around the world managing high-end construction projects, primarily working and traveling to New York, Australia, Toronto, and Portland.

Jake was working in New York during 9-11. That caused a massive impact in his thinking…how can I make the biggest difference in people’s lives? Always the action taker, he decided to become a fire fighter. A “job” that he still has today and will continue to do even though it’s not financially necessary. Jake, along with his brother Brian, are the owners of The Elevation Group. The Elevation Group is a financial education company they acquired using the strategies they learned as members.

Their goal is to grow that business and get this wealth-building information into the hands of as many people as possible. They have significant experience in many real estate strategies and also manage a private investment fund they started 2 years ago.

GREEN FLAG: BLACK GOLD

It was 2015 and my brother and I had been doing a lot of different types of investing when this great opportunity arose in Gas and Oil. It was a big oil field where some of the wells working but not producing a lot; others needed cleaned out, primed, etc. in order to get them going. The price of oil was high and it looked like we couldn’t lose. 

I knew very little about oil and gas in actuality. Like so many investors who get into a field they don’t understand, I just thought that since I had done a lot of investing and was a fairly smart guy, I could figure out the rest as we went along. Instead of being focused on learning the industry I was entering, I was trying to map out how we were going to make all this money. We were expecting close to 6 figures a year from this deal.

RED FLAG: NOTHING

The first red flag was the fact that literally nothing was happening. Everything was taking longer than we had thought and after six months there were no returns at all coming in. I felt scared at that point and realized I did not even have a plan or any way to control whether the whole thing failed.

We did not have any type of standard reporting process to get information, but the field people would send occasional reports. The reports said things like: we hit sand layers, need to go deeper, pressure is too low or “we may sue the concrete manufacturer for such bad concrete plugs and seals”. I always know when I hear the word “sue” that things are not going well for sure.

BLACK FLAG: TOO LATE

A few months later the oil prices started to drop. They continued to go down until they reached $40 a barrel. When we began this investment it was selling for $100 a barrel. This was the pivotal point for me and I started really paying attention. I realized that I had jumped into this investment without doing the proper research……and now it was too late to fix it. I could see it failing, but there was no money to pull out and nothing I could do to salvage things.

We use the word “opportunity” a lot, but we have to keep in mind that unless we learn the industry, we don’t really know if it is good or not. We have to study and understand the investment and have a clear strategy first before determining if it is a good opportunity or a bad opportunity.

WHITE FLAG: WALKING AWAY

Mentally I was already going down the path of shutting down when I got a notice from CAPEX. They said in order to keep things going they would need more money put in for repairs and drilling. The notice said that if I was not prepared to invest further that my shares were going to be forfeited back to them. Up until then I was still holding on to a little hope, but when I got that invoice I knew that it was time to let go and dust my hands off so to speak.

If I had seen some returns, I would have considered it. But it was clear nothing could sustain this investment in the long-term. If I kept putting more money in, I would have lost it, along with the other $50,000. I would also have lost the opportunity to put that money somewhere else more productive.

CHECKERED FLAG: KEEP GROWING

I ended up feeling confident that moving on was the right thing to do. I now see it as a learning experience. I think it is important to learn from our mistakes and pass on what we have learned to help others and just keep on growing. I believe every experience is an opportunity to grow.

FAILING FORWARD

In each episode of How to Lose Money, we ask our guests to answer a few questions about failure. Here’s what came out of this episode:

  • Why did this failure experience happen to you?

Because I invested in something I didn’t fully understand. As a result I lost control of my money. If you don’t control the bad, you can’t control the good either.

  • What is the single most important lesson you’ve learned from this?

Many people often say “you have to be ready to take action”. But I learned from this experience that action without knowledge can be worse than inaction. Some people say “don’t let fear of failure stop you”, and they are right. We have to be willing to take risks, but you have to make sure you have a plan and a road map before moving. When you take action you also take on a lot of responsibility.

  • How do you protect yourself from failing in this way again?

The Elevation Group primarily. We have learned so much being involved with a network of successful people. It is very helpful to work with people who have become wealthy and learn their strategies, listen to their advice and come to understand how differently they think than the rest of us.

  • Who do you turn to when you need help?

I turn to my brother who I talk to often throughout the day anyway. I am also learning to talk more to my wife and rely on her strengths. She helps me ask some important questions and slow down before making a decision.

  • What advice would you give to someone in a similar position to yours?

When you see an opportunity, take a look, investigate it. Remember that that’s all it is: an opportunity. If you have what you think is a great opportunity along with understanding of the investment, and a good strategy that is a different scenario. That’s the magic combination. If you don’t take advantage of the opportunity, that opportunity is going to take advantage of you. Don’t be afraid of saying “no” to an opportunity.

This episode is based on an interview with Jake Fouts from The Elevation Group.

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