My Worst Investment Ever Podcast Pavan Sukhdev - Don’t Make Exceptions Rules Are the Essence
BIO: Pavan Sukhdev’s remarkable journey from scientist to international banker to environmental economist has brought him to the forefront of the sustainability movement.
STORY: Pavan ignored his investment rules and invested in a bond, which caused him to lose almost his entire investment.
LEARNING: Don’t make exceptions; the rules are the essence. Set up concentration risk limits. Diversify.
“A lot of investment mistakes are about not following your own disciplines. Had I followed my own disciplines, I wouldn’t be telling you this story.”
Pavan Sukhdev
Guest profile
Pavan Sukhdev’s remarkable journey from scientist to international banker to environmental economist has brought him to the forefront of the sustainability movement. As CEO and Founder of GIST Impact, he collaborates with corporations and investors, leveraging impact economics and technology to measure a business’s holistic value contribution to the world.
Worst investment ever
Pavan is a relatively disciplined investor who always tries to maintain his money’s principal value by investing it wisely. For this reason, Pavan follows a couple of personal investment rules.
First, wherever he invests, he either makes friends or has friends. Second, Pavan follows a strict logic when investing in financial assets—he only invests in sovereign bonds. Third, Pavan has set up a concentration risk limit of $100,000 for a single sovereign emerging market. He never invests more than $50,000 on a credit. Fourth, Pavan always reads about the company he wants to invest in to understand what it does and its credit rating. Fifth, Pavan typically invests in sectors where he would be above average in reading and knowledge about that company.
Once, a friend came along and asked Pavan if he knew of a particular company with a bond earning 8.75%. Pavan hadn’t heard about it. But he happened to know the family that owned it, and he was interested in it. Pavan decided to invest $100,000 instead of putting his maximum concentration of $50,000.
As part of his investment strategy, Pavan reads about companies. A news flash said that the company was involved in a contract in Malaysia. Pavan thought this was great, but that was that.
He never followed up on the news. It happens that the company lost the contract. Losing the contract was a big thing that caused the bond price to go down to $75 from $88. At this point, Pavan should have reduced his exposure by bringing the $100,000 down to $50,000, but he didn’t. He continued to sit on the losses and hung on, and the price kept dropping. Finally, at some point, when it was just too low for it to make any difference, the company stopped paying coupons.
Lessons learned
- Don’t make exceptions; the rules are the essence.
- Set up concentration risk limits and reflect the volatility of that asset.
- Diversify
- Don’t sit on losses.
Andrew’s takeaways
- Follow and stick to a stop-loss system.
- Don’t buy something just because you’ve sold something else.
Actionable advice
Set your concentration risk limits, put your trading style in place, and diversify.
No.1 goal for the next 12 months
Pavan’s number one goal for the next 12 months is to get his company profitable because it’s nice to be right, but it’s better to be profitable.
Parting words
“All the best, guys. Invest wisely and invest well, and when it works, do something useful with that money.”
Pavan Sukhdev
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Connect with Pavan Sukhdev
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