My Worst Investment Ever Podcast Thomas Chua – Have a Proper Sell Thesis When Investing
BIO: Thomas Chua is the founder of SteadyCompounding.com, where he writes about business breakdowns, investment concepts, and timeless lessons from super investors.
STORY: Thomas invested in a company that had a gaming and e-commerce business. The gaming business was his main attraction, but over time, it started faltering. Unfortunately, Thomas held on until the stock went too low.
LEARNING: Have a proper sell thesis when it comes to investing, especially for smaller companies. Always write down why you should buy certain companies and what will cause you to sell them. When investing in small to mid-companies, ensure you’re adequately diversified.
“Start writing down what would cause you to sell the company to assess the risks and also to prepare yourself for the future.”
Thomas Chua
Guest profile
Thomas Chua is the founder of SteadyCompounding.com, where he writes about business breakdowns, investment concepts, and timeless lessons from super investors.
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Worst investment ever
Thomas started initiating a position in a company back in 2019. The company, Sea Limited, had two business arms, gaming and E-commerce. When Thomas first bought a position in this company, its market cap was about $14 billion. The gaming business, Garena, had a revenue figure of about 1.1 billion, and its operating income was 530 million, so the operating margins were high at about 50%. The company was growing at a 100% rate. The E-commerce business, Shopee, was also growing quickly but was unprofitable.
Thomas was attracted to the company’s stock due to Garena’s success. It had a decent valuation compared with what other gaming companies were trading at.
When COVID-19 hit, the stock took off. Everybody on Twitter was crazy about this company. Thomas got absorbed into the whole narrative that Sea Limited had become invincible. Like anything they touched, they turned into pure gold.
The thesis behind Sea Limited was that Garena would finance Shopee until it became the most dominant player in whichever market it entered. Shopee’s management got a bit hot-headed back then. They started to go everywhere, and it was doing well in revenue.
The problem with this thesis was that Garena started to falter. Much of its growth came from developing countries like Indonesia and India. At some point, India banned Garena’s Free Fire game. Also, as COVID-19 started to ease, the number of users on Garena began to reduce. The stock took a tumble. When Thomas first bought the company, the stock was over $30. Then it went all the way up to over $300. Now it went down to below $30.
Lessons learned
- Have a proper sell thesis when it comes to investing, especially for smaller companies.
- Before investing, always write down why you should buy certain companies and what will cause you to sell them.
- When investing in small to mid-companies, ensure you’re adequately diversified.
Andrew’s takeaways
- Be careful about just trying to build up a portfolio of small or medium-sized companies that you believe will be the next big thing because outcomes can be highly variable.
- When you feel that you need to sell, sell 10% first.
Actionable advice
Start writing down why you buy and conduct a premortem to help you decide when to sell.
Thomas’ recommendations
If you want to read about investing concepts in general and learn more about Thomas’ mistakes and lessons, check out his website.
No.1 goal for the next 12 months
Thomas’s number one goal for the next 12 months is to reach out to more people with a lot of sound investing principles.
Parting words
“Always keep investing in knowledge, learning, and understanding what you own. Do your due diligence because you can’t do well in the stock market on conviction. Learn how to value companies and don’t let short-term market movement affect your long-term investment goals.”
Thomas Chua
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Connect with Thomas Chua
Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Andrew’s online programs
- Valuation Master Class
- The Become a Better Investor Community
- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- FVMR Investing: Quantamental Investing Across the World
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points
- Achieve Your Goals