What I Learned from Losing Millions on Horsehead Holding

I want to share a story that isn't easy for me to tell. It's about one of the biggest investment mistakes of my career—a loss in a company called Horsehead Holding. This isn’t just a tale of financial pain. It's a powerful reminder of why sticking to your investing principles matters more than ever, especially when things look promising.

You see, investing isn’t just about picking the right stock. It’s about understanding risk, staying disciplined, and acknowledging that even the best research can run into surprises. My experience with Horsehead Holding is a textbook case of how important it is to follow Rule #1 Investing strategies through thick and thin.

The Opportunity That Looked Too Good to Miss

Back around 2012, I came across Horsehead Holding while monitoring investors I admire. Both Mohnish Pabrai and Guy Spier—two value investing giants—had bought into it. That caught my attention. When great investors make a move, I dig deeper.

Horsehead seemed like a dream opportunity. The company was in the zinc recycling business, and they had a clear competitive advantage: they could extract high-grade zinc from steel dust—a waste product other companies had to pay to dispose of. Better yet, Horsehead was building a brand-new state-of-the-art facility that would make it the lowest-cost zinc producer in North America. In commodity businesses, low-cost providers usually win.

I estimated that once the new plant came online, Horsehead would produce up to $110 million in EBITDA, potentially valuing the company at over $1 billion. Their stock was trading at around $11 at the time. If the projections came true, it could easily double—maybe even quadruple.

But as every seasoned investor knows, projections aren't promises.

Doing the Research (Mostly)

I did my homework. I pored over 10-K filings, quarterly call transcripts on Seeking Alpha, and articles by independent analysts. I studied the industry, zinc pricing trends, and Horsehead’s position within it. The deeper I dug, the more confident I became.

The company checked a lot of boxes:

• A simple business model

• A price moat as a low-cost provider

• Management that seemed experienced

And yes, I broke one of my cardinal rules: I didn’t demand a clean 10-year history of financial performance. That decision would come back to haunt me.

The Cracks Beneath the Surface

Things began to unravel slowly. The new plant had issues. Delays crept in, then cost overruns. But management reassured investors—publicly and privately—that things were under control.

Then came the kicker: zinc prices collapsed. Not because of normal supply and demand, but because Glencore, a massive commodities firm, dumped $1.5 billion worth of zinc onto the market to manage its own debt crisis. Zinc prices fell from $1.00 to $0.60 nearly overnight.

With revenue dropping and plant issues mounting, Horsehead missed a $1.5 million interest payment on a relatively minor $30 million loan. That single missed payment triggered a default clause. Instead of raising capital or seeking shareholder input, the company’s management filed for bankruptcy. Just like that, equity investors were wiped out.

What Went Wrong: My Honest Reflection

Looking back, several key lessons stand out.

First, I deviated from my own Rule #1 framework. I overlooked the importance of a strong, 10-year track record. I saw the potential and trusted others' due diligence over my own principles.

Second, I underestimated the risk posed by debt. Even a small amount of debt—if paired with poor management decisions—can destroy a company.

Third, and perhaps most painful, I misjudged management. They weren’t outright crooks, but they failed to communicate the true state of affairs. They panicked. And shareholders paid the price.

The Aftermath: Fighting for Shareholders

When Horsehead filed for bankruptcy, Guy Spier and I filed pro se motions—without lawyers—to plead our case in court. The judge agreed that something smelled fishy and gave us an equity committee, which rarely happens in bankruptcy cases.

Despite uncovering evidence that the company still had value, the judge ultimately ruled that the company’s debt exceeded its value. Our investment was officially worthless.

It was painful. But it was also a lesson I won’t forget.

The Lessons I Want You to Learn

If you're following the Rule #1 Investing philosophy, let my mistake be your education.

Never compromise your principles for what looks like a sure thing. Always check the full 10-year performance history. Be wary of any company carrying even modest levels of debt. And remember that management behavior under pressure is the ultimate test of character.

Finally, diversify. I say "buy a company like it's the only one you'll ever own," but don’t actually make it the only one you own. This loss hurt, but it didn’t ruin me because I was diversified.

Final Thoughts

Horsehead Holding could have been a huge winner. And it might still be a successful business today—just not for us equity holders. The process wasn’t fair, but that’s investing. It’s not about perfection; it’s about learning, adjusting, and moving forward with discipline.

Stick to your investing rules. Do your own research. Avoid debt. And always invest with integrity and humility.

Because if there's one thing this investment taught me, it's this: Rule #1 is Don’t lose money. Rule #2 is Don’t forget Rule #1.