Why So Many Private Investors Lose Money

Why would an investment firm choose to make less money?

John Bogle, the man who started Vanguard, is an unwitting mentor of mine.

The core of his business model was to charge investors as little as possible. With that simple principle, Vanguard grew into the second-largest asset manager in the world. Over 50 million investors across 160+ countries have entrusted them with $11.6 trillion.

Simply by making less money — which is also the foundation of Equity Check's strategy.

Why do so many private investments lose money?

In my first private equity role, I sat in a capital-raising seat. I raised a lot of money ($500M+) and talked to a lot of investors (~2,000).

I developed relationships with many of those investors, and came to care about them and their families. I heard their stories — how they made their money, the businesses they started, the risks they took, and their dreams for the future. I invested with that company, and so did my family.

Many of those deals performed poorly, and a lot of people lost a lot of money.

This troubled me deeply. I couldn't bear that people had trusted me and had lost money. I thought I would never raise capital again, and that the financial world wasn't for me.

But a nagging question persisted. I felt strongly there was something for me to learn — and that if I simply wrote off the whole financial world as "that's not for me," I wouldn't learn what I was meant to learn.

That nagging question was how, and why, did this happen?

The leaders of the company were smart guys, we bought good properties in strong markets, and we had really impressive Excel spreadsheets — lots of them.

So what went wrong?

The answer that came to me — incentives.

Incentives are at the core of human behavior, and we all respond to them, mostly unawares.

Unfortunately, the financial services world is largely made up of bad incentives. Moral hazard is the strongest way to say it — when one party takes the risk and another pays for it.

Those incentives take the form of fees:

• Acquisition fees
• Asset management fees
• Property management fees
• Construction & development fees
• Refinancing fees
• Disposition fees
• Loan guarantee fees
• Marketing, administrative & affiliate fees

The vast majority of the financial services world — be it traditional stock-market investing, retirement planning, or private investments — is a fee-extraction machine.

John Bogle put it succinctly — too much cost, not enough value.

Are private investment fees tied to performance?

My experience wasn't the exception, it was the rule — investors lose money, and the sponsors get rich.

The standard structure incentivizes activity and asset gathering, not performance. To turn Munger's quote into a formula:

::callout

title: Show me the incentive, and I'll show you the outcome variant: info

Incentive: activity and asset gathering. Outcome: activity and asset gathering. ::

When every acquisition is a 6-, 7-, or 8-figure payday for the sponsor — and an addition to their assets under management, meaning more fee income — that's a powerful incentive to acquire more assets, regardless of whether they're good investments.

This is how and why a lot of people lost a lot of money. Sponsors doing bad deals, buying properties at the top of the market, with risky debt, cherry-picking the data that supported their decision, and blaming the market or the Fed when investors lose money.

This is motivated reasoning: the desired conclusion comes first, and the evidence-gathering bends to fit it. Munger called it incentive-caused bias — the idea that your incentives don't just change what you do, they change what you genuinely believe is true.

What does an aligned investment sponsor look like?

When the why became clear, I asked one of my favorite questions.

The exact ratio varies by offering, and no single compensation model proves alignment by itself. But the questions become much better once the economics are visible:

• What does the sponsor earn before investors receive a return?
• How much sponsor capital is exposed to the same downside?
• Which fees reward activity, and which compensation depends on outcomes?
• Does the waterfall change behavior when a deal is merely marketable rather than genuinely attractive?

At first, many opportunities I reviewed failed on this standard alone. That was not evidence that alignment was unrealistic. It was evidence that the structure was doing exactly what it was designed to do.

The aligned sponsors worth considering tend to share a few characteristics:

• They can explain their economics plainly. You should not need a spreadsheet forensic exercise to understand who gets paid, when, and for what.
• They stay inside a defined circle of competence. Depth in one asset class and a small number of markets matters more than a long product shelf.
• They make downside cases visible. Good underwriting shows what changes when rent, occupancy, costs, rates, or timing move against the plan.
• They report without being chased. Financials, variances, decisions, and material risks arrive because accountability is part of the operating system.

That is incentive-caused clarity: the same force that can make a fee-driven sponsor rationalize a marginal deal can make an aligned sponsor decide the deal is not good enough.

Are private investments riskier than the stock market?

This inversion changed everything for me. There is risk in everything; investing is not exempt. To put my head in the sand — or to pretend that index-fund investing, hiring a financial advisor, or putting it all in gold carries no risk — was lazy thinking.

The question is not "is there risk," but how well are you avoiding it. And investing with people who are incentivized to avoid risk is a great place to start.

This simple principle is at the core of Equity Check. I proudly represent sponsors whose incentive structure places investor interests first.

Work with aligned sponsors

Equity Check evaluates sponsors through Alignment, Asymmetry, and Accountability before presenting an opportunity. Current economics and terms remain offering-dependent and are governed by the applicable documents.