My Worst Investment Ever Podcast Direk Khanijou – Be Careful of the Dangers of Leverage
BIO: Direk Khanijou is a student of business and currently works with his family in the textile business in Bangkok, Thailand. He started his investment portfolio at 20 while studying at the University College London.
STORY: Direk invested in a pharmaceutical company simply because it had some of the most respected hedge funds on the shareholder roster. He lost 94% on his investment less than two years later.
LEARNING: Be careful of leverage and taking on too much debt. Don’t stray outside of your circle of competence when investing. Be cautious of endowment bias.
“Mistakes are great because that’s where the real learning happens.”
Direk Khanijou
Guest profile
Direk Khanijou is a student of business and currently works with his family in the textile business in Bangkok. He started his investment portfolio at the age of 20 while studying at the University College London.
He looks to differentiate himself through hard work, voracious reading, and continuous learning. His objective is to compound capital at decent rates of returns without taking undue risk.
You can learn more about him at RBX Investments.
Worst investment ever
Direk invested in a pharmaceutical company despite having no experience or interest in that industry. He was impressed by the company’s incredibly complex business model. This company caught his eye because many brilliant people had invested in it. It had some of the most respected hedge funds on the shareholder roster. Owning it made Direk feel smart.
Under the then CEO, the company relied on guile and aggressive accounting to increase its value. The CEO believed spending money to develop new drugs was inefficient and wasteful. So instead, the company borrowed money to acquire pharma companies, slashed its R&D, and jacked up the prices of life-saving drugs to offset volume declines. In 2017, the company raised the price of one particular drug from $13.50 to $750 per pill. This decision revealed everything that was wrong with the CEO’s business model. The stock collapsed, and the CEO was fired.
Direk had invested in this company in October 2015 at $166 per share and sold his shares in March 2017 at about $10 per share. That’s a 94% loss on his capital. He had many chances to sell along the way, but he was just too stubborn, and his ego made him hold onto the losing stock for too long.
Lessons learned
- Be careful of leverage and taking on too much debt. When a business has a lot of debt, the focus of the management sometimes shifts from managing the business to managing the balance sheet.
- Be careful of endowment bias and learn to strike the right balance between holding onto your losers for too long and letting your winners run.
- Don’t stray outside of your circle of competence when investing.
- There are two ways to learn from mistakes. You can make mistakes and learn from them. Or you can learn vicariously from other people’s mistakes—which is much less painful. Direk, however, believes lessons stick better when you make a mistake yourself.
Andrew’s takeaways
- Do your research before investing, even when an intelligent, successful person recommends a particular investment vehicle.
- Leverage is the number one risk that a company faces because it takes away flexibility.
Actionable advice
Subscribe to My Worst Investment Ever podcast and listen to the many lifetimes’ worth of wisdom. Secondly, develop your own investment philosophy early on in life. Figure out what kind of an investor you want to be. Lastly, hang around people who are better than you; over time, you’ll drift in that direction. You don’t have to hang out with them physically. You can mentally hang out with them in books.
Direk’s recommended resources
- Read The Art of Learning: An Inner Journey to Optimal Performance by Josh Waitzkin to learn about his learning principles because learning to learn is a meta-skill in life. Once you figure out how to learn what you want to know, then you can get into any field you wish to.
No.1 goal for the next 12 months
Direk’s number one goal for the next 12 months is to pick one industry, then spend the next six to 12 months reading everything he can about that particular industry and try to develop a good understanding of that industry. Direk’s other goal is to get better at dancing.
Parting words
“Thank you so much for having me on your show Andrew; it’s a real privilege.”
Direk Khanijou
Connect with Direk Khanijou
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
- Best Business Book Club
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points
Connect with Andrew Stotz:
Further reading mentioned
- Roger Lowenstein (October 2001), When Genius Failed: The Rise and Fall of Long-Term Capital Management.
- Josh Waitzkin (May 2007), The Art of Learning: An Inner Journey to Optimal Performance.
- Annie Duke (October 2020), How to Decide: Simple Tools for Making Better Choices.