Shownotes
BIO: Michael Episcope is the co-CEO of Origin Investments. He co-chairs its investment committee and oversees investor relations and capital raising.
STORY: Michael invested in a multi-family property in Austin with a friend who had vouched for somebody else. Unbeknownst to Michael, the guy in Austin had taken a loan against his property to save other properties in his portfolio.
LEARNING: Do not justify the red flags because an investment opportunity looks great. Investing is about how you behave and not what you know.
“When looking at an investment opportunity, do not justify the red flags because the investor investment opportunity looks so great.”
Michael Episcope
Guest profile
Michael Episcope is the co-CEO of Origin Investments. He co-chairs its investment committee and oversees investor relations and capital raising. Prior to Origin, Michael had a prolific derivatives trading career and was twice named one of the top 100 traders in the world. Michael earned his undergraduate and master’s degrees from DePaul University. He has more than 30 years of investment and risk management experience.
Worst investment ever
In 2004, Michael, a commodities trader, ventured into an investment with a friend’s recommendation. His friend’s assurance and Michael’s financial stability made him believe he was impervious to mistakes.
The investment was a multi-family property in Austin, Texas. Michael trusted his friend and thought he did the due diligence, but he did not. The deal was okay, as they had the right city and the right piece of land. But then the communication from the individual in Austin was not going very well, and things just weren’t adding up. But Michael’s friend kept insisting everything was good.
Still, something didn’t sit well with Michael, so he went online and Googled his property. He saw his property was sitting on a bridge lender site. The guy in Austin had taken a loan against Michael’s property to save other properties in his portfolio.
The whole thing just went sideways. Michael took a lot of time and effort to wrangle away from that investment, wasting a year of his life. He got pennies on the dollar back from that investment.
Lessons learned
- Investing is about people.
- When looking at an investment opportunity, do not justify the red flags because the investment opportunity seems so great.
- Investing is about how you behave and not what you know.
Andrew’s takeaways
- Even though you may sometimes have the wrong outcome, it doesn’t mean you didn’t do the right thing.
Actionable advice
- Do as much due diligence as possible. When investing with someone, ask yourself:
- Do they have something to lose if the investment fails?
- Do they have their skin in the game?
- Do they have a balance sheet?
- Do they have something here at risk more than you do?
Michael’s recommendations
Michael recommends that anyone wanting to learn about personal finance read Morgan Housel’s books. He also recommends downloading his free Comprehensive Guide to Real Estate Investing.
No.1 goal for the next 12 months
Michael’s number one goal for the next 12 months is to deliver a great product and service to his investors. On the personal side, Michael has two kids in college and one still at home. He aims to spend as much time as possible with the son still at home and then enjoy life after kids as an empty nester with his wife.
Parting words
“Thank you so much for having me on today. It’s been great.”
Michael Episcope
[spp-transcript]
Connect with Michael Episcope
Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Andrew’s online programs
- Valuation Master Class
- The Become a Better Investor Community
- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- FVMR Investing: Quantamental Investing Across the World
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points
- Achieve Your Goals
Connect with Andrew Stotz:
Transcripts
Andrew Stotz:
Hello, fellow risk takers, and welcome to my worst investment ever, stories of loss to keep you winning in our community, we know that to win an investing you must take risk, but to win big, you've got to reduce it. Ladies and gentlemen, I'm on a mission to help 1 million people reduce risk in their lives, and I want to thank my listeners in Chicago, Illinois, for joining that mission today, fellow risk takers, this is, in fact, your worst podcast host, Andrew Stotz from a Stotz Academy, and I'm here with featured guests, Michael episco. Michael, are you ready to join the mission?
Michael Episcope:
I am. I'm ready. I'm Yes, ready, Andrew, let's go.
Andrew Stotz:
I am excited to hear a little bit more about your story. So let me first introduce you to the audience. Michael is CO CEO of origin investments. He co chairs its investment committee and oversees investor relations and capital raising. Prior to origin, Michael had a prolific derivatives trading career and was twice named one of the top 100 traders in the world. Michael earned his undergraduate and master's degree from DePaul University, and has more than 30 years of investment and risk management experience. Michael, take a minute and tell us about the unique value you are bringing to this wonderful world.
Michael Episcope:
Oh, good question. Andrew, well, I, when I think about that question, it's really the things that bound my two careers together, and it's, it's both, I think, risk management, the ability to process information very quickly, but identify opportunity at the same time and managing risk. Or I would say absence of loss is not gain, and you can manage risk by doing nothing, but it's taking calculated risk. And that's excuse me, why, in my first career, I was very successful. I could process information very quickly. I could make decisions. I knew how to manage risk. I knew how to I knew when to kind of back up the truck and make big bets and when it was really in my favor. And I also knew when to slow down and empty it and kind of pull back and take a couple steps back. And the same thing has really benefited me in real estate investing as well, at origin investments, and I've been lucky enough to have a fantastic partner as well. We share a lot of the same views about life, and when we got into this business, it was more about managing and growing our wealth. And we have a saying, I, you know, never want to utter the words. I used to be rich, and so my first career was about building wealth and really creating wealth from the ground up. I didn't have any money when I was 27 years old. I got out of the commodity trading business when I was 35 and then got into real estate investing after that. And investing is really about behavior, and it's not about what you know, it's at the end of the day, it's about how you behave and manage downside. And I'm I've always been a student of the game, whether it's commodities trading or investing in the stock market or private equity or real estate, and it's just being able to stay the course and being able to invest through different real estate cycles and understand what it really looks like to truly Stress test your assumptions and get to the other side. And that's, I think, what is unique to my own skill set, what I brought and why I've been successful twice. And
Andrew Stotz:
can you tell us a little bit about origin and what you guys are doing, just so I understand your business?
Michael Episcope:
Yeah, origin is a real estate investment manager. We started it in 2007 my partner and I, and we really started it coming out of the commodity trading world. He was actually an ultra high net worth investor, as was I in the beginning. We it was more like a family office, and we had the simple saying, We can do this better. We invested with others, and I think we're going to get into my worst investment ever here at some point. And that is really what led us to starting origin is that we didn't have a lot of luck investing with other people, and we said we wanted to take control of our own investment destiny. So today, I'm proud to say we have 4000 investors, 70 team members. We invest in multi family properties across Sunbelt markets. We build, we buy and we lend, and we really we help high net worth investors maximize the benefits of owning real estate and rid them of also the burden. So whether you're looking for income, whether you're looking for growth, whether you're looking for a combination of both, or tax efficiency through QC programs, or 1031, the unique thing about our platform is that we are homogeneous. We only work with registered investment advisors, wealth managers and individual investors as well. So it's been a fantastic run, and I'm excited to be where we are today and the last. Couple of years, I'm sure, have not been, I'm sure, you know, have not been kind to real estate. I was reading something the other day where it's been the second worst real estate recession in 40 years, and we've weathered the storm, and we've got a little bit more to go, but I'm really looking forward to what's on the horizon coming in, you know, kind of late, 2526 27 so, you know, it's been a been a good run.
Andrew Stotz:
What when someone wants to invest with what you guys are doing? Are they investing in your entity, or are they investing in a fund? Are they investing in a limited partnership? Or how does that work?
Michael Episcope:
So they invest a few different ways. It depends how you want to invest. But generally, we cater to accredited investors and qualified purchasers, depending on the fund itself. But we have diversified funds so they're open ended vehicles, so you invest all of your capital at once, and it's working at one time. We also have individual opportunities that we bring out sometimes to our fund investors. We just syndicated a deal a few weeks ago, a great deal in Phoenix. It's a deal that our fund is actually doing, but it's too large for just the fund. So we have opportunities like that. We just bring it out to our investor groups. This has already been vetted by us. It's been approved for the fund. We know a lot of individuals like individual deals, but I think one thing unique about our organization, and the way our strategy is, is that we are buy fix and hold. A lot of organizations are buy fix and sell. But I'm a taxable investor. My partner is all 4000 of our investment partners are as well in real estate. When you look at the history and the return of real estate, a huge part portion of that, about 40% comes through cash flow. And real estate is also tax efficient. And too many people treat this like private equity, buy, fix, sell, we did that actually, if you you know, going back to the beginning, and we thought we were great, generating IRR, the problem is you're on this hamster wheel, buy, fix, sell, pay taxes, do it again. Take a lot of risk, pay taxes. You never get cash flow. You never get the advantage of the tax benefits that real estate offers, like depreciation, the ability to refinance tax free using the 1031, exchange code. And it's just, it's kind of a way that, you know, to me, investing is about you want to take the least amount of risk to make the most amount of wealth and too many people they emphasize IRR over wealth, building multiple on invested capital. And I just with real estate. Real wealth is made by buying great assets, building value and holding them forever. And you can say that about stocks, you can say that about real estate, but any assets where you're in the common equity position that are likely to appreciate you want to hold for the long duration, and that's how we think about this as managers. What
Andrew Stotz:
are people missing when they're flipping, let's say after, I don't know, five years or whatever their time period they're missing. You know, they may be buying it at somewhat of a low price, fixing it up, getting that cash flow up and then, and then the present value of those future cash flows now look bigger. They can get a better price for what they got in at and I think I'm going to take that cash and invest in another deal like this, so they see the appreciation aspect of those, let's say, five years, whereas you see something beyond that, that you say, No, we're going to hold this and keep this value and not go through the trouble of getting rid of it and having to find a replacement for it. Or how do you guys think about it?
Michael Episcope:
Yeah, I mean, it's not every asset class. I don't want to compare this to everything. I mean, if you're an Office, Office is a trade, and you don't want to be in that forever, because there's nuances to that. But with multifamily over history, what you see is that it continues to gain in value, because your leases increase in value each and every year. It's only been three times in the last 40 years that rates, rental rates, have actually gone down, and so it keeps up with inflation. It always has utility, and it's a need based asset. And we've done this before. I remember deals because we were in the buy, fix, sell business. Our funds were closed ended. We had business plans we would sell, and it was only you look at this stuff, and you're always trying to improve as a manager and find a better way. And you look at this, and you sold an asset three years ago, and now it's coming back to you, and it's 30% more, and you missed all the cash flow, and you sold it, and you paid taxes, and you're going, why don't we just hold that asset? And so that is really what it's about, is having that strategy to minimize the taxes, to continue to compound, to generate the appreciation. You're going to go through cycles. You're never going to buy the bottom and you're never going to sell the top. But if the market is like this, and it just keeps going up and up and up, kind of like the stock market. Then you want to hold these for a long, long time. And I think we all know people who've owned real estate for 2025, 30 years, and they bought it for, you know, 802 whatever, $200,000 and now it's worth $8 million it's not always going to happen, but in any portfolio you're. Outliers are going to make up for your duds, because the most you can ever lose is your capital that you invested. But the upside is unlimited, and that's the way a stock portfolio, and it's no different in real estate investing, but you want to make sure that you're in quality assets and in markets that have wind at their back, where there's population growth, where there's job growth, where rents are going to continue to grow over time, and that's that. That's a time tested investment strategy.
Andrew Stotz:
When I think about real estate, I think about closed ended funds, because, you know, you just don't want people ripping their money out and then all of a sudden you've got an illiquid asset that you need to somehow liquidate. You did mention open end? Though, do you have anything that's open ended? I didn't understand
Michael Episcope:
that. Yeah, we have open ended funds. So basically, our funds are evergreen, and we have a liquidity provision in there where investors can get out every quarter. So we have, it's, I think it's two and a half or 5% every quarter. I'm not sure our redemptions have been pretty de minimis in the last few years, because we really we want people to think about investing in real estate long term as part of their portfolio, no differently than you would in stocks and not timing the market and in an open, open ended fund and or an evergreen fund, the advantage is, is that you will invest all of your money at one time in The fund. So to me, it's better to earn 10% on 100% of your money than 20% on 10% of your money. And stepstone just did a great piece on this. This was sent to me last week, but it was showing the IRR equivalent of closed ended funds versus open ended or evergreen funds, and what they needed to achieve to create the same multiple. And by the way, this is on a pre tax basis, so we do this on a post tax basis. It's even better. But they were showing like for a 10% return in an evergreen fund. The closed ended fund need to earn like 15% to get the equivalent in multiple over that time period, because IRR is often confused with annualized return. They're cousins of each other, and it has a place, but it's often too emphasized. And I was using this example to somebody. I said, Look, if you gave me $100 and I gave you $101 next month, that would be the equivalent of like a 26% IRR. That sounds great, but you haven't made any real money, and somebody long time ago said to me, Look, if somebody's going to give me 12% per year, I don't ever want them to pay me back. Just keep paying me the 12% and that's how you compound money over time. And that's really what it comes down to, is wealth building, but minimizing the effect of taxes and when you sell it really. I mean, the dirty secret is, it benefits the manager because they're trying to get to that promote. But there are other structures that you can do to sort of create something that works for the manager and the investor, but educating them on why this is a better way. And this isn't just us. I remember there was a gentleman here in Chicago. This goes back probably 15 years ago, when I was first in the real estate market, and he told me this story about how he had to educate his LPs. And he was a very big, large developer, and he developed a property here in Chicago on Michigan Avenue, and he put, let's call it, bought it for 12 million put $6 million into it, and then he sold it two years later for $30 million and they rang the register, and he did the same thing to a property in New York, almost the identical, not New York, I'm sorry, San Francisco, identical numbers. Well, in 10 years, the property in Chicago was worth about $150 million and the property in San Francisco was worth about $200 million so you look at this and you know, like, yes, the IRR probably would have gone down, and he did great, but he's like, you just, you don't sell great real estate, right? When you've taken care of the downside and you've refinanced out and you've taken your money out, let it ride.
Andrew Stotz:
Yeah, um, one last question related to your business. Let's just say there's a high net worth person out there, man or woman, and they sitting on a lot of money, but they're, they're really simple investor, and they just put it all into an index fund for, let's say the S, p5, 100 as an example, type of index fund. And they've been doing just fine. They're not too, you know, they're not too worried about it. They're getting, you know, eight to 12% return on average over the years, depending on when they started that. But, you know, they're getting older and they're thinking, and maybe I should bring in another asset class, or I should look at something. If you went to that person and said, Here's the benefit of bringing in real estate, you know, into your portfolio, or, let's say your instruments as an example. You know, first, first thing is number one, how much should that person bring in of this asset class into their portfolio? And number two is, what is the return expectation that you think they should have going forward based upon your knowledge? And then how does that impact? In other words, what's the correlation and how does that impact? The. Volatility of their overall portfolio?
Michael Episcope:
Yeah, a lot of questions there. So let me make sure I got them all. It's a very personal there's always value in diversifying and going into something like real estate, because it is less correlated, especially private real estate. If they're going to core if they're going to get into public REITs, you're going to be much more highly correlated, because public REITs do swing with the markets, and there's volatility in there. But in private real estate, you're going to get the true value of the real estate, and sometimes the public and the private markets are disconnected. And in multifamily real estate, we're about 40% correlated to the stock market. So you've reduced your volatility. For one the other thing is, depending on what your needs are, where are you in your life? Do you need income? Do you want more growth? Because we have funds that will generate, you know, our credit fund, for example, where you can get 11% in income, and it's only income that's where 100% is. And these are debt instruments that are generating, that are invested in multi family properties. And then we have something like our income plus fund that is in the debt and common equity sleeves. And it's a diversified fund, multi Strategy Fund, where you're going to generate more of a 6% return, but then you have future appreciation. So it depends on what, what the individual person is looking for in their portfolio. Because right now, the stock market yield, I think it's, you know, 2% or maybe even a little bit less, and there's not much income to that. And we've gone through these periods, and I've been this, I'm not a huge investor in the stock market, maybe a mistake. I do a lot on the alternative side to kind of get the exposure to the equity side of the markets. But you know, in my life, and we've seen this in 2008 and nine where the stock market has drawn down 50% we saw this in COVID and it all just depends on what your risk tolerance is and what you're trying to achieve as an individual. And some people are fine with the volatility. And some people like are at a point where I want to protect my wealth. I want to grow it. It makes sense to diversify. It makes sense to go into real estate. And real estate, what you don't want to do is go into something that is, you know, might be safer, but it also generates a lot less return, right? And you're going to get those. That's the trade off real estate, I think, is a little bit of unicorn, where you can actually have less volatility in your portfolio, but not give up the return standpoint, because multi family real estate, over the last call it 30 to 40 years, has kept up with the S P, the s it's actually diverged now, because the last couple of years, the S P has taken off while real estate has been in a little bit of a recession. But when you look at that, it's produced nearly the same amount of absolute return with far lower volatility, and that's what you're looking for in any portfolio. And your question was about how much our investors are anywhere between 5% of their portfolio just sort of dipping their toe all the way up to 25, 30% and you know, if you're somebody like me, maybe you've got 50% of your portfolio in real estate. So it depends on where, which products you're in, and where you know you're okay taking that risk. But I think in some ways, you can actually de risk the portfolio considerably by diversifying into real estate.
Andrew Stotz:
So there's a few things to highlight for the listeners that maybe are not that experienced in this particular area. But one of the things that you differentiated the public real estate, which is mainly REITs and things like that in the stock market, those tend to be if you think you're diff if you think you're diversifying by going into publicly traded REITs, chances are you're not, because the correlation of those to the market, because they're also part of the index. You know, they're at the correlation of those are quite high. Could be as high as 70% you know, 80% possibly to the market at times. But what you talked about is the difference between that and a private real estate investment where you mentioned about 40% correlated. And even that, I think, seems a little bit high. I'm surprised it's even 40% also, because the pricing, you know, how do you value that on a regular basis? Part of what makes it less correlated is you don't have a daily price on it. Then you mentioned about, you know, let's say, I'm going to say five to 10% return, depending on whether you're looking at trying to get maximum income out of it, versus some blend of debt and equity and the like that you may end up getting. And so if you were to just have a crystal ball, and let's say that we were to look forward, and we were to say the US market, stop. Market is going to have a 10% return on average for the next 30 years, right? And you had to say, Okay, this your space in real estate. You know, forget about all the instruments and all the different ways that we can play that game. But let's just say your area of private, you know, real estate, is it going to return us more or less than the S p5 100? If, let's just say that we knew the S p5 100 was going to be 10% 10%
Michael Episcope:
I think the expected return is about the same as the S p5 100. So it's not going to be more, it's not going to be less. It's a lower risk asset class. And it also depends on which sector you're talking about in real estate. You mentioned public REITs, and there's a lot of public REITs out there. If you're looking at data centers, or you're looking at mobile technology, or you're looking at timber or office or industrial there, there's a whole myriad of ways to play real estate. We specialize in just multi family. And multi family has been proven to be a great hedge against inflation, because rents and housing make up about 30% of the CPI. So when our rents go up, CPI goes up, and when CPI goes up, it's usually as a result of rents going up in a multi family housing development. So it's really a great hedge, especially for what's going on right now. And when you say, you know, crystal ball, I'm excited about what the next two years looks like. We are actually you may or may not know this, but we are sitting today in one of the worst supply gluts we've seen in the last 50 years in multifamily real estate, and we're going to deliver about 190,000 units, or we did this last quarter, we're going to deliver another 160,000 next quarter, and then it slowly continues to creep down. And when we get past 2025 into 2026 we're only going to be delivering about 50,000 units per quarter, and we need to be delivering about 80 to 100,000 to keep up with just population growth and new household formation, and we also have a housing shortage. So in some ways, you know, we've been in a recession for the last two years. Interest rates have remained high. Deals don't pencil out, which is going to create this supply issue going in the forge. The reason why we're in the supply glut is because of zero interest rates. Looking back Fed policy takes a long time before it impacts real estate. And we're going to see another leg up in real estate in six to 12 months, where I believe firmly, you're going to see rental rates shoot up because of a lack of supply that is being built today. Really, shovels haven't gone in the ground in the last 12 to 18 months, and that's the first sign of a recovery. So we already see signs in the market, where the capital markets are recovering, and more and more money is coming into the market and taking advantage of what they see is growth. And if you want to look anywhere, just look at the public REITs, the multi family REITs, especially, they're up 35 40% from their lows that were posted last year. Yeah,
Andrew Stotz:
I have to ask another question, which is it, if Trump delivers on what he's saying, which is mass deportation, Does that have an effect on demand? In other words, if you, let's just say hit 3 million people, either he deports, or they think, Oh, maybe I shouldn't hang around. And let's say, I don't know, 3 million people are definitely out in the next, let's say 12 to 18 months. Does that have much of an impact, or that that doesn't really factor in? Yeah,
Michael Episcope:
I'm not going to say no, because I think that would that, you know, like, I mean, if we deported 3 million people, it's got to have somewhat of an impact. But we deal with Class A properties, so we build, buy and lend only to properties that are really 10 years and newer. So that's not our demographic, but, but there is a little bit of a trickle down, and you don't know what the ancillary impact of deporting that many people is going to be so I don't, I don't see a direct correlation into what we're doing. Certainly, if we were in workforce housing, if we were in class C, B minus value add, you know that nature, we would feel it in that particular place. But not, not what we're playing today. We go after what I'll call a renter by choice. People are college educated, they could buy, but they choose to rent. They want the flexibility of renting versus owning. They tend to have, you know, not only a four year degree, but a lot of you know, even a graduate degree.
Andrew Stotz:
I have a PhD and I rent. There you go, right
Michael Episcope:
it's, Hey, look. And that's the other thing that's going on with real estate right now, is that it's never been more expensive to own a home in this country than right now, as compared to renting. And we look at the owner's equivalent rent index, and it's, it's 41% more expensive to own a home than rent. And. And it that's never been wider. And so the only two ways that that comes back in line is that housing prices either fall, and it doesn't look like that's going to happen. If it didn't in the face of 7% mortgages or rents are going to go up, and I'm going to bet on the ladder for now. Well,
Andrew Stotz:
what a great breakdown on what you're doing. I appreciate you explain and all that. And now it's time to share your worst investment ever. And since no one goes into their worst investment thinking it will be, tell us a bit about the circumstances leading up to and then tell us your story.
Michael Episcope:
Yeah, I was thinking about this before I came on here, which one do I want to talk about it? And I'll really I think I'm going to go pre origin and stuff. And we've been pretty good here and lucky. We've never lost money on a multi family property, but, but I also think about, certainly, I've had investments that have lost money. I think about it in terms of, there is you can make the right decision and have the wrong outcome, and you can make the wrong decision and have a great outcome, but the ones that really it's but that's not gonna It's like playing the law of large numbers right. You want to make the right decisions, and yes, you're going to have some wrong outcomes. But for me, the ones that really sting is when I went into them and I just didn't like make the right decisions, and I had the wrong outcome, and it hurts, and you feel dumb. And I'll take you back to, I think this goes back to probably 2004 right around there, I invested with a friend of mine. He vouched for somebody. I had some money. I was a commodities trader. You can imagine I was, you know, when I was 27 I made my first million dollars. And, you know, by this time, I'm like, 34 years old, and I thought I was invincible and couldn't make any mistakes. And, you know, I didn't throw it around where a lot of guys did, you know, the same way. But I invested in a deal in Austin, Texas, and it was a multi family deal. And, you know, we were aggregating land, and there was a guy down there that a friend of a friend. And you know, it was just one of those things. I just got in thought he would do the due diligence, you know, trusted him to do it. And the deal actually was okay. I had the right city. We had the right piece of land. Everything went well, 2000 Well, this is, I actually know when this was, because this would have been about 2000 Yeah, four or five and 2008 came and we had the land. I'm like, okay, no big deal. We are we're unlevered. We own these houses outright. We're aggregating this land. No big deal. But then the communication stopped, and I knew this individual was in trouble. And people behave badly in two situations, either when they make, you know, too much money, or when they're losing a ton of money. And in this case, his world was going under. And I remember, you know, my communication was through my friend here. It put a lot of strain on a relationship. It was unfortunate, the communication from this individual in Austin wasn't going very well, and things just weren't adding up. But all sudden, one day, he said, Yeah, everything's good, you know, Steven got a loan. He got this, and I'm like, oh, okay, interesting. But something didn't sit well with me, and I went on the internet, and I Googled our property at that time, and all of a sudden, I saw our property was sitting on a bridge lender site. But what he did is he got a loan against our property to save his other properties in his portfolio. And I just, you know, hit the ceiling, and I was just like, oh my god, this is absolutely unbelievable. So now you're dealing with fraud. I had to hire a lawyer. I was flying down to Austin, Texas. I was sitting in a courtroom. We were trying to get an injunction here. Like the whole thing just went sideways. And I feel like I lost a year of my life going through this. And it really, you know, when you're investing in real estate, it's about people. It really is. And like I said, it's about not what you know, but how you behave. And in this case, yes, part of it, I mean, I own my part. I didn't know this individual. I was relying on somebody else. You have to do your own due diligence. But he was also not, you know, a good actor, either, and so took a lot of time, a lot of effort, to kind of wrangle away from that thing. I got pennies on the dollar, you know, back, and it was a lesson and at the time, and this is really for everybody to kind of realize, is that you feel really, really stupid at that moment in time, but it led me to start origin, and I look back and I'm actually grateful for that moment, because if that would have been a good experience and the other good experiences, then I would have never started origin. And I look back and I'm like, that might have been the best thing that ever happened to me, is losing that money and going through that, and ultimately, my partner and I said, we can do a better job than this, I mean, and stop giving our money to other people out there. And I know there's good operators and there's good investors. Unfortunately, you know, I just had a couple streaks of really, really bad luck along those ways. And that was a hard lesson to learn, and it was painful, and it was. Especially painful, you know, talking to my wife and telling her about this and, you know, and it was, it was time and aggravation out of my life that I just didn't need, and time I could have been spending with my kids.
Andrew Stotz:
How would you summarize the lessons you learned?
Michael Episcope:
Investing is about people, when it comes down to it, in the private markets, I know public markets. I mean, obviously you have to have a good wealth manager, but it's when it comes to private investing. It starts with the manager. That's it. And you have to, like, drill down, drill down, drill down. And don't, when you're looking at an investment opportunity, do not justify, like, the red flags, because the investor investment opportunity looks so great. You and I think investors, many of them, do a really good job with this is they're like, look, I don't want to talk about the funds. I want to talk about you guys. I want these questions. I want to know about you and your partner. I want to know about corporate structure. I want to know about your balance sheet. I want to know if you're going to be here in 10 years. And then we'll talk about the funds, and that's how you should really do it. And too many people are lured in with these quick hitting deals. High RR, you got to make a decision very quickly. But we all know people who have been in those and you can't unwind private investments. You're marrying these things for many, many years. So it's about people first. Yeah,
Andrew Stotz:
it's great lesson. And for the listeners out there, you know, one of the things you referenced was about decision making. And episode 601, I had with Annie Duke, where she talked about, you know, having the right decision making process, even though you may sometimes have the wrong outcome, doesn't mean you didn't do the right thing. Another interesting one in relation to this was episode 384, and that's Michael morrowski, who spent 10 years, you know, was sentenced to 10 years in jail for fraud, for taking money from one entity and using it to save another. He didn't, you know, fully understand that that was a serious, serious thing. So for any listeners out there, you know, the most important thing to take away from it, from my perspective, is that when you have any type of business venture, you bring in people investing into that specific business venture. The whole purpose of a corporation is to ring fence that all that risk is in that specific venture. And the idea of taking any of the assets of that venture to be used to save another venture, it's not impossible. It's not something you can't do. It's just that you need to go to the shareholders and make sure everybody's clear and there's a vote on it, and then after that, you're free to do it. But don't just assume, hey, a little bit of cash here can help this guy out or help my other business out. That's the big no no. Anything else you would add to that.
Michael Episcope:
That's a great story. And it just reminds me, I forget the exact book I was reading, but it's about these lines in life that we're faced with and so many people. And the book was really about it might have been Morgan Housel book about behavioral investing, but it was really about how people cross this line that they shouldn't, and then once you cross that, they keep crossing it. And next thing you know, they wind up in jail, right? Like, oh, I'll never do this. Okay? I'll just do it this one time, where I'll cross this and stuff. And you just, you can't do that. And once you make that exception one time, you've gone over that line, and that line keeps moving and moving and moving. And everybody you know, or anybody who's been you know, accused of financial crimes, they justified everything that they were doing along the way. Oh, this isn't a big deal. I'll repay it. I'll do this. I'll just do this once. And, you know, like, like, that's, that's how things start. So you have to find people with the utmost integrity, and, you know, find the stories, especially when you meet them. But we're in the business of, you know, building relationships and trust with individuals. And it takes years and decades, sometimes to do that, and you can break it just by doing one wrong thing. Yeah.
Andrew Stotz:
And some young people, I teach an ethics and finance class here in Bangkok. And some young people, maybe they get scared, like I'm going to get kind of caught in a situation and, you know? And the answer is no, actually, it's pretty simple. Talk, talk, talk with your investors, talk with the people that you're working with, discuss what the options are, and then make it easy on yourself. Give it to everybody to say, what do you guys think? Or let's vote on it, or something like that, and take all the pressure off yourself. But you know, the problem is when, when times get tough, all kinds of stresses come down, and then people do, you know, things they shouldn't be doing. But the truth is, is that people, investors, are not irrational. They see if somebody's having trouble, and if you're sincere and honest, they're going to say, Okay, how do we solve this? Particularly if you know they stand to lose a lot if it's not resolved. So talk. Yeah, if based on what you learn from this. Story and what you continue to learn. Let's imagine you're going into this situation again, or some young person's going into this exact situation right now. They're listening to this podcast like, hey, wait a minute. That sounds a little bit like what I'm about to go into. What's one action that you'd recommend that person take to avoid suffering the same fate.
Michael Episcope:
Do as much due diligence on the human being. It doesn't you can go through the legal documents. You can do everything you want, like, like, all that stuff. You never in a great partnership. You never want to visit the legal documents until it's time to split the profits. And even in this situation, I was actually protected with the legal documents, but it came down, like, if people are going to behave badly, they're going to find a way to do that. And you just, you have to go in with people who you trust, who I know. This sounds easy, like, how do you figure that out, though, right? And it's through a lot of due diligence, but it's also looking at somebody, what do they have to lose if this happens to them? And do they have their own skin in the game? Do they have a balance sheet? Do they have something here at risk more than I do, and in this case, this individual didn't. He didn't have a balance sheet. He was an individual who was single, and it was like when we think about investing, skin in the game matters, right? What are you What does this manager have in it? And there are other deals I had. I remember I had a deal with Lehman Brothers many, many years ago, and this was a deal that I thought was absolutely gone. It was like a hedge fund, a derivative, if you remember the Lehman Brothers bankruptcy, and I literally wrote this thing down to zero on my balance sheet, and I remember my wealth manager. Look, the manager here has 30% or whatever, 40% of the fund. It's like 70% of his net worth. He is going to fight, claw, scrape, all this and stuff. It was like six years later I got a check for not only my original investment, but also the return on that investment. I couldn't believe it. And the guy did really good over those six years. I didn't even realize, because statements stopped, everything stopped. It got caught up in the bankruptcy. But this guy, like he did the right things within the Lehman structure, even though there were so many things wrong, because he had his skin in the game and it end, it was just, like, such a lesson. I'm like, Oh my God. Like, that was fantastic, right? And outcome, but it's, it's the categorically, the opposite of, you know, investing with managers who are aligned with you and win with you and lose with you. And they're going to scrape, you know, scrape and claw to get their money back and yours too.
Andrew Stotz:
Yeah. What's a resource? I know you've got your comprehensive guide for investing in real estate and podcasts or other things. What's something that would be a recommendation or a resource that you would recommend for the listeners?
Michael Episcope:
You mean, besides our website or
Andrew Stotz:
both your resources as well as you know, any others, feel free to, you know, share what, what? Yeah, well,
Michael Episcope:
you can always, I mean, to learn about real estate. We've been publishing content since 2015 this is something we're incredibly passionate about. Our mission is to enhance the lives of everyone who comes into the origin community, and that's our investors, our team, prospective investors, and just to really make people smarter about investing. So we have a ton of information there, but I think a really great book that I've read recently is by Morgan Housel, and you'll have to help me with this book name, because it's been a while. Do you
Andrew Stotz:
know the Yeah, it's called same, same, but different, or I can't remember right now.
Michael Episcope:
Oh, yeah, but Morgan Housel, he's, I think any book you read by him is going to be fantastic. And I've been a huge fan of his. And it's really about behavioral investing, and the same as ever, okay, yeah. And the punch line is this, that investing is about how you behave and not what you know. And they talk about people who you know, went to MIT, but still became very bad investors. And they talk about people who all these chapters that are eight pages, but, you know, got greedy along the way, ended up in prison, ended up, you know, but also the janitor who died with $12 million and why and how did he do that? And it really resonated with me, because I've seen this in my own life. My grandfather owned a grocery store with my grandmother, and he was a person who never made more than $40,000 in his life, but he had a basket of five to seven stocks that he knew like the back of his hand. And he was a long term investor. He never sold, bought things like AT and T and Goodyear Tire and these great companies, and he ended up passing away with $8 million you know. And here's a guy who just, you know, kept putting the nickels, the dimes, the pennies into the stock market. So it was a great story, yeah, um.
Andrew Stotz:
And for those listeners that want to learn more about Morgan Housel and his worst investment ever, go to episode 255, of my worst investment ever. That was just when he was publishing. Him his book The Psychology of money. And so he shared a little bit of, oh, that
Michael Episcope:
was it. Psychology money was the one I read. Yeah, I apologize for not knowing the name I should have. Yep, come on, but that is a great quick read. Every chapter is five to eight pages. I learned so much, and it just, it'll resonate with anybody. Yeah, it's
Andrew Stotz:
one of the top books of all time in the finance space for personal finance type of questions. All right, last question, what's your number one goal for the next 12 months?
Michael Episcope:
It's a good question. I think about that as a personal and professional goal at origin, one of our core values is just continuous improvement, always doing what we do better, and we finished the year with a kind of a quarterly recap of end of the year. The leadership team gets together about what do we do? Well, what can we do better next year, making sure that we have the right people in the right seats, the right team, and just gearing up for a great 2026 and getting sorry 2025 and getting through 2024 and doing more of the same, and just delivering, I think, a great product to our investors, and really good service as well. On the personal side, I'm at a point in my life where I've got two kids in college, and I've got one still at home, an 18 year old. He's a senior, so spend as much time with him as I possibly can, and then enjoy life after kids as an empty nester with my wife, we just celebrated 25 years of marriage, so that's exciting. We're looking forward to this next chapter.
Andrew Stotz:
That's exciting and makes me think of a great song by The who, in the next year or so, you're going to be singing this song, I'm free,
Michael Episcope:
maybe, maybe, but for now, yeah, it's a little when you're in the moment, you're a little sad seeing your kids. I will tell you, it's a really special week. This is Thanksgiving, and all three of the kids are home right now. And maybe a minute ago, you could have heard my son, Sean, screaming and yelling. He just got home, and he's, you know, playing with the dog right now. So writing,
Andrew Stotz:
you want to get off this thing I know. All right. Listeners, there you have it. Another story of a loss to keep you winning. Remember, I'm on a mission to help 1 million people reduce risk in their lives. As we conclude, Michael, I want to thank you again for joining our mission. And on behalf of a Stotz Academy, I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience?
Michael Episcope:
I'm good. Andrew, thank you so much for having me on today. Yeah, it's been great,
Andrew Stotz:
and that's a wrap on another great story to help us great, grow and protect our wealth, fellow risk takers, let's celebrate that today, we added one more person to our mission to our mission to help 1 million people reduce risk in their lives. This is your worst podcast host Andrew Stotz saying, I'll see you on the upside. You.