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Today, I want to take a look back at one of the greatest misses in investing history.

But first a question for you...

Would you give 40% of your company in exchange for 10% of the future earnings of an untapped offshore oilfield?

It sounds like an odd proposition.

But in 1978, this was the premise of a proposed deal between Norway and Swedish company Volvo.

Volvo initially offered to sell 40% of the company for $18 million to Norway. But Norway made an unusual counteroffer: 40% of the company in exchange for 10% of the future income from Norway's North Sea oil drilling.

Norway was not a large producer of oil & gas at this time, but the country was just about to start drilling an offshore oilfield in the North Sea. The oilfield was untapped, so nobody knew exactly how much oil was in it.

This might sound like an odd proposal. Why would a car company sell a large portion of itself to a sovereign nation, and accept oil royalties as payment?

Well, it's actually more logical than you might think. While you might know Volvo for its cars, the company began diversifying into heavy equipment manufacturing and oil, food, and financial trading in the 1970s. That's right Volvo was a diversified Holding Company.

By 1981, cars would only make up about 25% of the company's revenue.

Norway, a country short on liquidity, countered the cash offer with the proposal to sell off its future oil income instead.

Volve shareholders voted the agreement down, despite the CEO's urging to accept the deal. It just didn't feel right. Would we be giving away 40% of our company for nothing if no oil is extracted?

Turns out, this was a huge miss.

Norway's North Sea oilfield was actually flush with oil. While it's hard to know the exact figure, Volvo's 10% royalty would have earned the company approximately $200 billion over the next 50 years.

And remember, Volvo was looking for the equivalent of $18 million in its initial offer.

Volvo later sold off its car division for $6.5 billion in 1999. The rest of the Volvo company is worth about $50 billion today, But the Norwegian Sovereign Wealth Fund has about $1.7 trillion under management today, mostly thanks to oil.

Here are some takeaways from this wild story:

• Know what risks you can take, and which you can't. While it may be easy to look back and back this "foolish" investment decision, I'm sure I would have made the same call that the Volvo shareholders did back in 1978 without the benefit of hindsight. Could they really afford to give away 40% of the company for something that could potentially amount to $0? There's a very real possibility that the company would have failed shortly afterward if the oilfield didn't produce.
• Take moonshots. Imagine if Volvo had managed to get a piece of these potential profits..that's dreamy. But the key is taking moonshot risks is to do so with limited downside. Wagering 40% of your shares on a moonshot risk is not smart. But wagering 1% on a moonshot might be well worth it.
• Investments aren't made in hindsight. While we can study missed investments like this and laugh about the massive profits they missed out on, we have to study the decisions more closely to actually become better investors and capital allocators. What information was available at the time of the decision? Did they actually make the right call given the information they had at the time? What would I have done differently?

While Volvo certainly missed out on billions of dollars, I don't think they could have taken such a large risk. What would you have done if you were Volvo?

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🔑 One interesting read

Should you buy a business that needs to be turned around?

I enjoyed this story from Eric, who purchased a failing SEO agency for $2.00 (no, that's not a typo) and turned it into a full-service and profitable digital marketing agency.

While it worked out for him, his simple piece of advice for buyers is this: Don't buy a turnaround opportunity. It's not worth the hassle! (we disagree on this sometimes)

TLDR of Eric's learnings:

1- diligence the team. Are these the right people to turn this biz around. If you don't have the right people, don't buy.

2- Even if you're buying a business there is opportunity cost. Meaning you should still diligence the business. If you buy something horrible it can be a nightmare and a lot of pain for you. You could have spent the same time buying a better, easier business.

​Read about it here

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🔑 One interesting deal

I found this interesting business listed for sale. It's a SaaS platform that helps users track anonymous website visitors. This sneaky software is used for marketing purposes to retarget website visitors on other platforms, even when the website visitors don't submit their name and email.

What I like

The company is 17 years old, which is a huge plus. Typically, I love acquiring businesses that are older than 15 years because they've weathered many ups and downs. The company was acquired previously in 2016, but the old owner reacquired it in 2019. It could be seen as a positive that the company is still operating despite the changes in ownership, but I'd want to ask what the first acquirers did wrong and why they sold it back to the founder. I also like that it's B2B; the business has ~500 companies as customers, meaning the average company spends about $2,500 a year on this software. That's a great figure.

What I don't like

The premise of this software, tracking anonymous website visitors, could be seen as shady marketing by some. While it's perfectly legal, similar software tools get bad publicity every so often. This software has become a bit of a commodity. I've seen a dozen of these products in the market so you have to figure out how/why you can differentiate over the long term. And finally, Apple, and Google are regularly changing their privacy/security policies right now which may introduce risk in your ability to track website visitors. You'll need to diligence this...

​Check out the listing here

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🔑 My interview with the king of Auctions - Check out my conversation with Shannon Jean, an entrepreneur who's made millions buying & selling electronics, handbags, and other goods on eBay. Check it out here: Watch on YouTube, Listen Spotify, or Apple Podcasts​

have a great week,

Sieva

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Are you going to Main Street Summit? I'll be there...

I’ll be speaking at Main Street Summit in Columbia, MO on October 9 & 10. It's like Coachella for business-buying nerds like me. I asked their team for a discount code for my loyal newsletter readers. If you want to come to check out the event, book your spot here.

You can use the code SIEVA2024 at checkout to get 15% off your pass.

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Disclaimer: nothing here is investment advice. Please do your own research. The information above is just for information and learning.

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