My Worst Investment Ever Podcast Joseph Hogue – Never Ignore the Debt to Equity Ratio
BIO: Joseph Hogue graduated from Iowa State University after serving in the Marine Corps. He worked in corporate finance and real estate before starting a career in investment analysis. He has appeared on Bloomberg and CNBC and led a team of equity analysts for a venture capital research firm.
STORY: Joseph bought stocks in an energy company at a time when industry prices were low with the hope that the company would outperform the market, but it didn’t. He lost $30,000 in the investment.
LEARNING: Always look at debt-to-equity ratios, especially in a down market. Set percentage caps on the stocks in your portfolio.
“Bad things happen to good companies.”
Joseph Hogue
Guest profile
Born and raised in Iowa, Joseph Hogue graduated from Iowa State University after serving in the Marine Corps. He worked in corporate finance and real estate before starting a career in investment analysis. Joseph has appeared on Bloomberg and CNBC and led a team of equity analysts for a venture capital research firm. He holds a master’s degree in business and the Chartered Financial Analyst (CFA) designation.
Joseph left the corporate world in 2014 to build his online businesses, first through creating websites and later through his YouTube channel, Let’s Talk Money. He’s since grown the community to over 500,000 and reaches more than 1.8 million people a month through his blogs, YouTube channel, and a weekly market newsletter.
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Worst investment ever
In 2014/15, high debt and low energy prices knocked the entire coal industry down. Regulators were circling, trying to limit the coal generation capacity in the United States. But still, a third of the US energy grid was generated by coal, so this was still a viable resource that people were using. The stocks in the energy industry were down by almost half.
Joseph was fully aware of what was happening in the industry. He decided to do a bottom-up analysis of the stocks. He found Peabody Energy, the world’s largest private-sector coal producer at the time. The company had a solid market share and relatively good fundamentals relative to many other stocks in that sector.
He started buying Peabody Energy stocks in 2015. At the time, the stock was already 50% lower from its peak just a couple of years ago. The stock kept falling, and he kept buying. Like many investors, Joseph fell into the gamblers’ trap. Eventually, he was just praying to get even.
Peabody Energy ended up filing for bankruptcy in 2016, and in the process, Joseph lost about $30,000. This loss embarrassed him because he had already worked in the industry for about four years and had passed all three levels of the CFA in 2011. He was a charterholder and had worked with venture capital and private wealth management.
Still, Joseph just ignored the basics of investing. He thought he had a strong investment case in that coal was still something the US would need to generate electricity. The world was not about to get rid of it overnight. A lot of these stocks seemed to be trading at a discount. Joseph picked the one stock he thought had the financial size and scope to survive, supposedly, but it didn’t survive.
Lessons learned
- When buying a specific industry is down, always consider the debt-to-equity ratios. This will help you know if the company can survive this period of market weakness.
- Just because you think a company or even an entire industry is indispensable doesn’t mean that that specific company can’t file for bankruptcy or that it can’t wipe out its shareholders.
- Don’t think any companies or investors are sacrosanct.
- Set percentage caps on the stocks in your portfolio.
- Bad things happen to good companies.
Andrew’s takeaways
- Debt is the number one risk that companies face.
- Understand how bankruptcy can affect your portfolio and what to do when a company you’ve invested in files for bankruptcy.
Actionable advice
Don’t put more than 10% of your money in a single stock. Do your rebalancing on the asset level, from stocks to bonds, commodities, or other assets. Suppose you’re trading in a particular industry or even a sector doing well. In that case, you can always reallocate some of that money into the competitors doing well, so you still have that industry exposure that’s doing so well but not necessarily that one individual company.
Joseph’s recommended resources
- His Let’s Talk Money YouTube channel, where he explains investing in straightforward and easy-to-understand ways.
- Sectorspdr.com, where you can see how the 11 stock sectors of the economy and the S&P 500 companies have done over specific periods like one day, five days, up to five years. The analysis gives you an idea of what the market is doing in those 11 sectors. You get to know which sectors are performing well and which ones are lagging.
- FactSet Earnings Insight is excellent for people who want to do a deeper analysis of the companies in the S&P 500. The site provides data on their earnings and what the expectations are. The website updates its earnings insight report every Friday.
No.1 goal for the next 12 months
Joseph’s goal for the next 12 months is to start an investor community with a revenue share agreement. His investment goal is to keep pushing hard and making more money to invest.
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Connect with Joseph Hogue
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
- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points