How a $ 330 million mistake made me a better investor

<p class = "canvas-atom-text-canvas Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Only two years after the start of the Blackstone group (BX), Stephen A. Schwarzman made a huge miscalculation that could have ended his career as an investor. "Data-reactid =" 15 "> Just two years after the start of the Blackstone (BX) group, Stephen A. Schwarzman made a colossal mistake of judgment that could have ended his career as an investor.

After coming out of it, he developed an investment process that is still in use today, the tycoon told Yahoo Finance.

In 1987, Schwarzman approved a $ 330 million takeover of the Edgcomb steel distribution company. Yet, as if all was going well, steel prices collapsed soon after the deal was completed, resulting in massive losses.

The transaction went so badly that an angry investor summoned Mr. Schwarzman to Nyack, in the state of New York, just to reprimand him. In an interview, Schwarzman described the situation as a "defining moment" for the company and its career.

"We basically bought a company where two partners did not agree," he said. "One thought it would be a big winner.The other thought it was going to go bankrupt," said the billionaire investor at Yahoo Finance.

"I chose the first partner.We had no process.We were sitting in front of my desk.I thought I was King Salomon at age 38. Guess what? I was not there ,? he added.

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Even today, Blackstone has become the largest private equity firm in the world, with over $ 545 billion in assets under management.

But this almost catastrophic failure became a learning moment for Schwarzman, who prompted him to create a new investment process involving workers at all levels.

The ideas are presented in a written memorandum delivered two days before a meeting, so that people "will not be fooled by someone who flips tables," said Schwarzman.

When the group meets to review the investment, everyone at the table must participate by indicating the risks, their likelihood and their potential gravity.

The process helps presenters "realize that they will fundamentally regroup intellectually each time they enter the room, so it's never personal because it happens every time," he explained.

"And that makes the team much better prepared. And everyone around the table will be better prepared, "added the billionaire.

<p class = "canvas-atom canvas-text Mb (1.0em) Mb (0) – sm Mt (0.8em) – sm" type = "text" content = "Julia La Roche is a finance reporter at Yahoo Finance. To follow her Twitter."data-reactid =" 52 ">Julia La Roche is a finance reporter at Yahoo Finance. To follow her Twitter.