By Luke Acton Monday, 23 June 2014

The 11 most expensive business mistakes in history

Everyone screws up now and then, but these costly clangers really take the biscuit.

1.  Betting big on the mortgage market

Bond trader Howie Hubler lost Morgan Stanley $9-$10 billion (estimates vary), the biggest loss made on Wall Street by any single trader ever. He rather sensibly shorted subprime mortgages, but then bet big on slightly higher quality home loans that still ended up being worth nada.

In a tasty twist of irony, Hubler now has his own outfit, which is paid to give people money to stop them defaulting on their mortgages. The scheme is called the ‘Responsible Homeowner Reward’. Indeed.

2.  Not keeping track of your investments

Back in 2009, positively swathed in the fog of time, James Howell mined 7,500 Bitcoins, then worth almost nothing. Fast-forward to 2013 and those very same virtual moneys could be sold for more than £4m. The catch? Howell had thrown the hard drive away, after he spilt a drink on the computer, dismantled the parts and stashed them in a drawer for years, forgetting about the Bitcoins.

The IT worker did head down to the landfill, but was faced with a mound of rubbish the size of a football field and was told his precious virtual currency would be three to five feet under. Not quite as costly as the old man who threw away his wife’s winning Euromillions lottery ticket, but a pricey blunder all the same.

3.  Not seeing the next big thing 

20th Century Fox missed out on as much as $27bn after they let George Lucas keep the merchandising and licensing rights to Star Wars instead of giving him a $350,000 salary raise, as they thought the film would be a flop. Instead, the series includes some of the highest grossing films of all time, with the first one alone raking in $775m at the box office. Suffice to say, the Force was not with Fox.

4.  Trying to hide losses

Toshihide Iguchi racked up a total loss of $1.1 billion for Daiwa Bank in the 80s, after trying and continually failing to recoup what was originally a $70,000 failed bet on US government bonds in 1983. But he couldn’t hide the losses forever (as Enron’s bosses and Societe Generale rogue trader Jerome Kerviel also learnt the hard way) and the Feds finally caught up with him 12 years later.
 
In prison, Iguchi wrote books while in prison about life as a rogue trader, which became a number one besteller in Japan) and the sole surviving member of the Aryan League, George Harp, whom he befriended in the joint. As you do. 

5.  Keeping on keeping on when you’re losing

Nick Leeson was so sure he could get back the money he was losing in the mid-90s, he ended up bringing down Barings, Britain’s oldest investment bank. Six and a half years in a Singaporean prison is no fun for anyone, although on the bright side he got to be portrayed by Ewan McGregor in the 1999 film of the debacle (unimaginatively titled Rogue Trader).

6.  Taking enormous risks when you’re meant to be hedging against them

Bruno Iksil – a.k.a the London Whale – lost JP Morgan $6.2bn in 2012, after a familiar cycle of making bigger and bigger bets to try and offset spiralling losses. Except he was working for chief investment officer Ina Drew, who tried to turn what was meant to be hedging against risk into a money-spinner. And just look how that worked out. 

7.  Misunderstanding your customers


 
In the mid-50s, Ford thought everything it touched turned to gold. Its Edsel model was more pewter: too big, too similar-looking to other Ford models and priced all wrong, the car giant sunk $350m (worth billions in today’s dollars) into producing it, before ditching it in 1959.

8. Mixing up metric and imperial

In 1999, NASA lost a $125m Mars orbiter craft in space because it forgot to check everyone was using the same measuring system. Lockheed Martin worked in the ‘English system’ of inches, feet and yards, despite being an American company, while everyone else was using centimetres and metres. One teeny tiny oversight and the craft’s coordinates weren’t transferred between Lockheed’s lab in Denver and NASA in sunny California. Now we will never know if it found life on Mars…

9.  Not valuing your assets properly 

In 1867, Russia’s Tsar Alexander II looked at Alaska and saw nothing but a massive lump of ice that he didn’t particularly fancy going to war over. It meant US got its paws on huge oil and gold reserves for the kingly sum of $7.2m.
 
Also, high up the list of giving away something for pretty much nothing is Napoleon, who sold the territory of Louisiana, encompassing parts of 15 US states and two Canadian provinces, for $15m (a few hundred million today), in order to concentrate on defending Haiti. Less than a year later Haiti won its independence.

10.  Failing to protect your commercial secrets


In the 70s, Xerox created the first desktop PC controlled by a mouse, but never bothered selling it. Ten years later, Steve Jobs and other Apple employees took a three-day tour of Xerox’s R&D facility in return for $1m in Apple shares. Those are now worth more than $14bn, but the Mac maker’s market cap is more than $550bn. Xerox tried to sue Apple in the late 80s for using its technology, but they’d left it too late. As Jobs said, ‘Picasso had a saying, "Good artists copy, great artists steal".’ 

11.  Buying at the top of a market


 
AOL gobbled up media company Time Warner for $164bn in shares, way above its $111bn value, in February 2000. Then came the dot com crash in 2001, and the merged behemoth reported a record-annihilating loss of $99bn in 2002.
 
When the two companies were spun apart at the end of 2009 Time Warner was worth in the region of $40bn and AOL was valued at just $1.8bn. Even Time Warner boss Jeff Bewkes called the deal, "The biggest mistake in corporate history."

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