Michael McGaughy – How Currencies Can Crush Return in Good Stocks

Jan 13, 2019

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An award-winning analyst, Michael Mcgaughy has a diverse financial background spanning buy- and sell-side equity research, fund-of-hedge-funds, and private equity. He first came to Asia as an exchange student in 1985 and has been involved with the region ever since, having lived and worked in Beijing, Hong Kong, and Singapore, for different companies including HSBC, the old Crosby Group and StoneWater Capital. He currently manages a global value fund that looks for companies owned and controlled by quality people have structures that align minority and majority shareholder interests and trade at valuations that are below fair value if not outright cheap.

In this episode, Michael shares his investment story which was getting it wrong in the Ukraine Stock Market. For the experience, he blames the currency that accounts for most of his loss. The Hryvnia declined by 65% vis-à-vis the USD since his initial investment in March 2014. The currency decrease hides the fact that he made real investment blunders. His biggest mistake was not sticking to his my investment process.

“[An old Rothschild's saying]

The time to buy is when there's blood in the streets.”

– Michael McGaughy

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Topics Covered:

05:47 – The circumstance that leads to Michael’s worst investment ever: missed opportunity to invest in Indonesia and the quick doubling of his money when he spent in Greece’s stock market

07:10 – Stock market opportunity in Ukraine that pops up in 2014, the Maidan Protests that lead to Ukraine stock market to dive cheap. A crisis that did not work out, Michael losing 65% of his portfolio in the next 18 months of investing

08:45 – The fall of the Ukranian currency against US dollars

08:56 – The lessons Michael learned from his investment experience

10:22 – Andrew asks Michael about the qualifications he considers for his chosen stock market venture and how did he knew that the currency would not devalue, what are his parameters and metrics

12:18 – Andrew’s takeaways from Michael's story

14:39 – Michael’s one action to recommend to the listeners take to avoid suffering the same fate: “If you're going to go and look at really cheap assets look for really cheap assets. It's probably good to wait for the crisis to occur rather than get in before.”

Main Takeaways:

Lesson 1: “I think there's a lot of key takeaways. I guess the first thing is patience. One reason I'd like to go to the country is you can see the value and do a lot of research. Who is good and bad. Just by looking at kind of past IPO prospectuses or rights issues prospectuses, reading newspapers, talking to people. You get a lot of insight regarding what the exchange rate is when you go there.” – Michael McGaughy

Lesson 2: “You can get the company right but the currency wrong and it can be extremely painful. When you're investing outside of your home country, you do need to think about currency.” – Andrew Stotz

Lesson 3: “You can look at a country and see that it's down. You can get excited like there is an opportunity. Just hold on. Slow down because currencies can fall dramatically.” – Andrew Stotz

You can also check out Andrew’s books

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