LIF retrospective

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LIF, a Retrospective - by Peter Lambert
It started, as all good things do, on IRC.
I was asked by Mircea Popescu “what’s up with that fund you ran?”
So this is how I remember it:
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Back in June of 2011, just a few months after being introduced to bitcoins, I started the Lambert Investment Funds, or LIF for short. That was just after the Global Bitcoin Stock Exchange (GLBSE) was formed, and that was where the cool kids went to invest their bitcoins. Even though there were very few assets on the GLBSE at the time, I saw the potential of future growth in the bitcoin based investments area, and I wanted to get in on the ground floor. Indeed, today the stocks denominated in bitcoins reach into the millions of bitcoins, billions of dollars range. I decided to create a mutual fund for the new bitcoin stocks, and so I made LIF. This despite having taken no accounting or finance classes in my life, how hard could it be?
Looking back, I was a bit naive, and overly ambitious. Rather than just making one fund, I decided to make a whole family of funds, to take full advantage of the GLBSE’s naming structures. I called the parent LIF, and started with a couple child funds, LIF.A and LIF.B.  LIF.A would try to be less risky while LIF.B tried to be more risky. The problem here was I had no way of measuring risks of assets, so whether A or B invested came down to a judgment call by me.
I even made a website, LIFunds.com, to promote them and to publish the monthly reports. Yes, I was giving monthly reports, a standard which is being followed by the better bitcoin investments today. It would have been better if I had included more information in these reports, then people would have caught my mistakes earlier.
The structure I set up had the parent fund, LIF, with a fixed number of shares. The child funds, A and B would have flexible amounts of shares as demanded by the market. The child funds would pay 5% of profits as a fee to the parent fund, the rest of the profits would be paid as dividends to shareholders. My goal was to offer buys and sells for what the assets were currently worth. The spreads of those first bitcoin stocks were massive (a problem still seen in many bitcoin asset prices). This runs into a problem coded into the GLBSE: the book on each asset was mostly meaningless. The GLBSE would let people put up orders for which they did not have sufficient funds. So while the book said there were asks at such and such a price, if you tried to sell a share of the asset those bids would just disappear as you place your order. The effect was that share prices were highly manipulated and valuing an asset based on what you thought you could sell it for would lead to misvalued assets.
Anyway, I put these assets up on GLBSE, and people started investing. Nobody had met me, nobody knew who I was, but I had a good reputation on the bitcointalk forum and so people put some trust in me and my funds.
As time went on, I wanted to expand my fund offerings. I saw the volatile BTC/USD market as a potential target, making money off the swings up and down. so I started the currency exchange fund, LIF.CX. I exchanged some of the invested bitcoins for USD, the market at the time was crashing, and so the first month had a healthy profit, making everybody happy. Then the market stopped dropping, and the profits stopped.
I also expanded my funds by creating the LIF.M mining fund. I had no tech knowledge of how to run a miner, but there was conveniently a guy named Shakaru who was offering to sell mining power. He had a weird way of selling his contracts, you had to buy shares from GLBSE and then you could trade 1000 shares for one year of mining. I had grabbed some of these shares for under original price using funds from LIF.B, and so I decided to trade them for mining. He gave me a way to check the mining proceeds, and he started hashing away. This went fine for a week or so, but then the mining stopped. He kept saying he was having problems, things were about to get better, the mining would start back up again soon, but it never happened.
I managed to make some profits trading the spreads and the volatility of the GLBSE assets, but the profits were more than offset by total losses in most of the assets when they went belly up.
At some point I realized that most of the things listed on the GLBSE were scams. I decided that I was not equipped to run this sort of fund, and so I determined to shut it down. I started to sell off the assets which still held some value, but Nefario, the manager of the GLBSE, froze my account. Although he claimed on the forum to be trying to get in contact with me to resolve the situation, I never heard anything from him. I was frustrated, so I stopped using the forum and GLBSE and bitcoins.
A while later, I realized I had made a mess of the whole situation, and I wanted to fix things. But in the meantime Nefario had suddenly shut down the GLBSE and I had no way to contact him, and no way to identify who had invested in these funds. On the bitcointalk forum where this all began, I asked people to self identify as investors, and to provide addresses. I paid a small amount of bitcoins back to those people who responded. But I had no way of verifying that any of these claimants were actual investors.
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Looking back now, there are many things I would do different. First, I would take more time getting things set up properly. I would have thoroughly studied accounting and finance and laws before starting this sort of thing, rather than afterward. I would have developed relationships with people, learning peoples true identity and actually meeting them before investing, rather than just relying on a forum account. I would have poured more effort into validating identities of those people I was investing in. I would have a more focused investment strategy, rather than having a bunch of funds I would have just one fund, managed by the company wholly owned by myself. I would have been more demanding about having other people provide more information before I invested. I would have included more information in my reports. And I would have stayed away from all the miner bonds, the few that did not turn out to be outright scams were doomed from the sheer mathematics of hash rate growth. I would have relied less on the likes of exchanges such as the GLBSE.

- -Peter Lambert-
PeterL on IRC:freenode.net

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