My Worst Investment Ever Podcast

BIO: Brenden Kumarasamy is the founder of MasterTalk; he coaches ambitious executives & entrepreneurs to become the top 1% of communicators in their industry.STORY: Brenden decided to promote his YouTube channel by sending 500 cold emails per day to university professors. After sending 2,000 emails, he received very negative responses. Instead of reviewing his strategy, he sent more emails for three months and got nothing out of it.LEARNING: Follow the data and remove emotion as much as possible when making decisions. Make sure your marketing content offers undeniable value. “If you want to be in the top 1% of any category, you need to behave in a way that 99% of people aren’t willing to.”Brenden Kumarasamy Guest profileBrenden Kumarasamy is the founder of MasterTalk; he coaches ambitious executives & entrepreneurs to become the top 1% of communicators in their industry. He also has a popular YouTube channel called MasterTalk, with the goal of providing free access to communication tools for everyone in the world.Worst investment everWhen Brenden started MasterTalk, he had this brilliant idea to send 50,000 cold emails to university professors in Canada and the US. His thought was pretty strategic. Even if 10% or even 1% of the recipients shared his videos with their college students every year, Brenden’s distribution would be unlimited, and his YouTube channel would explode in popularity.Brenden didn’t know how automated email campaigns worked, so he’d manually send 500 emails each day. He would open universities’ websites, pull up their faculties, find their emails, and start sending emails. About 2,000 emails into it—about a week into it—he started getting negative responses from the university professors. Brenden got so much hatred; it was insane.Despite the hate and realizing his strategy wasn’t working, Brenden didn’t stop after 2,000 emails. Being the 22-year-old knucklehead he was then, he spent the rest of that summer sending 500 emails daily for the next three months. After all that dedication, Brenden got just two positive responses.Lessons learnedFollow the data and remove emotion as much as possible when making decisions.There’s no silver bullet to entrepreneurship, just hundreds of lead bullets. So don’t push just one primary strategy, have hundreds of little different strategies.When something starts working for you, instead of guessing why it’s working, ask your customers. You’ll get to see what’s working, and through that, you’ll get the results you’re looking for.Andrew’s takeawaysTry A/B testing across many different things to determine where you’re making a breakthrough.When you send any marketing content, make sure it has some benefit to the recipient.Be relentless when you’ve got the right target, and follow up without giving up.Brenden’s recommendationsBrenden recommends subscribing to his YouTube channel to access hundreds of free videos on how to speak. He also does free live communication training on Zoom every two weeks. If you want to join that, go to Rockstarcommunicator.com and register for the next one.No.1 goal for the next 12 monthsBrenden’s number one goal for the next 12 months is to scale his business to another level to create more impact for everyone around him.Parting words “Realize that the relationship successful people have with failure is very different than the one unsuccessful people have with failure.”Brenden Kumarasamy [spp-transcript] Connect with Julian KlymochkoLinkedInInstagramYouTubeWebsiteAndrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever Podcast

BIO: Julian Klymochko is the CEO and Chief Investment Officer of Accelerate, a leading provider of alternative investment solutions.STORY: Julian got into an M&A trade where the acquirer had to stage a shareholders’ vote. This led to a hostile acquisition where the target company was bought by another acquirer that was not part of the deal. Julian made a significant loss in this trade.LEARNING: Never put on an M&A trade that has the buy side vote. Arbitrage doesn’t always mean a riskless trade. “The best way to learn is to practice by doing. So, try it out yourself, and don’t risk more than you can lose.”Julian Klymochko Guest profileJulian Klymochko is the CEO and Chief Investment Officer of Accelerate, a leading provider of alternative investment solutions. Accelerate helps investment advisors, institutions, and individual investors diversify their investment portfolios, manage risk, and improve their portfolio’s risk-adjusted returns. Prior to founding Accelerate in 2018, he was the Chief Investment Officer of Ross Smith Asset Management. He started his career as an Analyst at BMO Capital Markets. Currently, Julian is a Director of the CFA Society Calgary.He has been featured in some of the world’s top financial and business media, including Bloomberg, CNBC, The Wall Street Journal, BNN, Business Insider, and The Globe and Mail.Worst investment everJulian started out in the mid-2000s as a young investment banking analyst working 100 hours weekly. He was handling mergers and acquisitions (M&A) and advising. During that period, Julian worked on some exciting deals. He got excellent insights into the inner workings of M&A, equity offerings, and capital markets. It was a great place to start a career.From that, Julian went to a startup hedge fund. He cut his teeth doing closed-end fund arbitrage, which was a fantastic trade, specifically during the great financial crisis of 2008. He could generate nearly risk-free returns that, at one point, were yielding 50% to 100% annualized returns because there was very low liquidity in the market, and people were desperate to sell. So arbitrage spreads were extensive. After that, Julian got into different arbitrage strategies; volatility arbitrage, convertible arbitrage, and one of his and Warren Buffett’s favorites, risk arbitrage.In 2012, Julian launched a standalone risk arbitrage strategy. He started with a $5 million investment from a handful of wealthy investors to conduct this risk arbitrage investment strategy. Risk arbitrage aims to generate high returns consistently—ideally, double-digit annualized returns and no down years.For the first four months, Julian put a lot of pressure on himself and was sick to his stomach every morning. But he still had a terrific first year with low volatility. Julian produced a double-digit return with low volatility and minimal drawdown. So investors were happy. The fund continued with that excellent trend for the first three years and grew significantly.2015 was an interesting environment in the M&A business. It was open season for pharmaceutical mergers. There was this popular trend called tax inversion. Tax inversion was where pharmaceutical companies would take over a foreign company to re-domicile offshore to lower their tax bill significantly. That trend buoyed M&A activity as domestic US pharmaceutical companies rapidly sought to conduct tax inversions by acquiring non-domestic competitors.At the time, a company called Valeant Pharmaceuticals was rapidly consolidating the pharmaceutical space. Their business model was dramatically different than their competitors—the old-school pharma companies. The company hired a former McKinsey consultant, Michael Pearson, to run Valeant. The company had already conducted a tax inversion and was now Canadian-based and not part of the S&P 500. It was part of the Canadian benchmark, the TSX. With that, their attitude toward growth was utterly different. Michael Pearson’s thesis was such that R&D is wasteful. The company grew through acquisitions. They would do hostile takeovers and gobble everyone up. This strategy was working. Their stock was doing exceptionally well.Everyone was praising the accolades of Michael Pearson and his business model. It became a highly respected strategy on Main Street and Wall Street. Analysts were going gaga over it, and investors loved it, creating copycats.Tax inversions were still all the rage, and Julian was active on these within the fund’s portfolio. Julian had this one particular M&A trade that looked quite attractive. The company, QLT, was a failed biotech company with just a bunch of cash. They were trading at roughly cash value, with few prospects aside from the money they had on the balance sheet and perhaps some tax losses. But one redeeming factor was that they were Canadian, not American, making it a prime candidate for an inversion. That inversion came through a definitive merger agreement with a US company called Auxilium. Auxilium was looking to run this new pharma playbook, re-domicile offshore by a tax inversion merger, then conduct M&A growth like Valeant.The requirements to consummate this merger were a successful shareholder vote by QLT shareholders. Additionally, since Auxilium was issuing approximately 25% of its outstanding shares in this merger, its acquirers’ shareholders would have to approve the deal. So they struck a deal with a 5% spread that would close in three months. A 5% spread over three months would be about 20% annualized, a handsome return.This trade was 4% of Julian’s fund’s portfolio, both long and short. Over time, Julian felt that a lot of consolidation was happening. He was worried that someone could make a play for Auxilium and acquire the stock in which his fund had a significant short position, which could lead to a considerable loss. So Julian decided to buy call options on Auxilium, utilizing some of that spread available to protect his fund in that awful potential scenario.A few months after putting on this trade, the worst-case scenario Julian had imagined happened. A pharmaceutical company run by Michael Pearson’s protege came and made a hostile takeover bid for Auxilium, the target acquirer in this M&A deal. Julian’s fund suffered a massive loss from this deal.Lessons learnedNever put on a merger arbitrage trade in which the acquirer has to stage a shareholder vote because it makes you vulnerable to a hostile takeover.Andrew’s takeawaysBe careful when dealing with arbitrage. It doesn’t always mean riskless arbitrage.Julian’s recommendationsJulian recommends Twitter as an excellent resource for information. You can follow him @JulianKlymochko. Julian also posts a lot of research and insights on his website that can help you, especially if you’re starting out. You can also check out other investment websites, such as Value Investors Club, where you’ll find professional research.Julian also has a couple of favorite investment books that he recommends:You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market ProfitsMargin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful InvestorThe Intelligent Investor Rev Ed.: The Definitive Book on Value InvestingAny book from Peter LynchParting words “Teach a man to fish, feed him for a day. Teach a man to arbitrage, feed him for life.”Julian Klymochko [spp-transcript] Connect with Julian KlymochkoLinkedInTwitterPodcastWebsiteAndrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever Podcast

BIO: David Hay has been employed in the securities industry since 1979 when he joined Dean Witter Reynolds, now Morgan Stanley.STORY: A colleague told David about a business that was going to sell books online. David wasn’t convinced that the business had a competitive edge. So while his colleague invested $50,000 into this company, David chose not to invest. The company was Amazon. Had David invested then, he’d now be a multimillionaire.LEARNING: Invest only what you can afford to lose. Keep challenging your thesis. Have a systematic quantitative framework to help you keep an open and agile mind when investing. “One of the most important things in investing is range expansion.”David Hay Guest profileDavid Hay has been employed in the securities industry since 1979 when he joined Dean Witter Reynolds, now Morgan Stanley.And since 2022, David has been chief or Co-Chief Investment Officer of Evergreen Gavekal with a special emphasis on macro-economic research.In 2022, David released his highly anticipated book, Bubble 3.0: Who blew it and how to protect yourself when it blows apart.The book explores why he believes the financial markets are headed toward a third iteration of past market rotations.Accordingly, he believes there are a number of investment areas/asset classes poised to benefit from what he has begun referring to as “The New World Disorder.”Worst investment everIn November of 1994, David received a call from a colleague. They were both portfolio managers at Smith Barney. At that point, they were investing side by side in virtually everything. The colleague told David about this guy who was starting a company, and he was going to invest $50,000 in it.The colleague explained that the business would sell books online. David didn’t understand the business’s competitive edge, so he opted not to invest in it.Six months later, the colleague told him the company was going public. Turns out, the company was Amazon. Had David invested in it when his colleague told him to, he’d now be a multimillionaire.Lessons learnedIf the idea sounds great, invest only the money you can afford to lose.The bigger and longer the trading range, the more important the message of the breakout or breakdown is.Constantly challenge your thesis.Andrew’s takeawaysHave a systematic quantitative framework to help you keep an open and agile mind when investing.For every company that becomes a billion-dollar or trillion-dollar company, the good news is that 99.99999999999% of people missed it.David’s recommendationsDavid recommends his free newsletter. You can also get a free copy of Bubble 3.0 by emailing him through Substack. David also recommends reading the Felder report by Jesse Felder.No.1 goal for the next 12 monthsDavid’s number one goal for the next 12 months is to remove his shorts and go max bullish.Parting words “It’s always so much cheaper to learn from other people’s mistakes than your own.”David Hay [spp-transcript] Connect with David HayTwitterYoutubeBlogAndrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever Podcast

BIO: Rex Salisbury is the Founder & General Partner at Cambrian Ventures, a pre-seed & seed focused fintech fund.STORY: Rex’s biggest mistake ever was sticking with his initial career too long, even though he knew he shouldn’t have been working that job.LEARNING: Invest in the skill that you want to move into as much as you. Build networks early in your career. “Make yourself marketable. It’s amazing what you can learn if you invest in certain things.”Rex Salisbury Guest profileRex Salisbury is the Founder & General Partner at Cambrian Ventures, a pre-seed & seed focused fintech fund. He previously was a Partner at Andreessen Horowitz, where he helped launch the fintech vertical. He has over a decade of experience working in finance & fintech, primarily as a software engineer, before becoming a venture capitalist.Worst investment everRex’s biggest mistake ever was sticking with his initial career too long. Rex attended a small liberal arts college on the American east coast—Davidson. He had a great experience and made a lot of good lifelong friends. Rex studied economics and also got a major in history.During his senior year, Rex worked in investment banking, specifically for Merrill Lynch. He also did an internship in South Africa and studied formal money lending. After college, Rex went to work in a bank. He believed that since banks are big businesses, there must be interesting work to do.Unfortunately, the experience wasn’t what Rex had imagined. He hated his job and had begun thinking about quitting from the second month on the job. But he kept dragging on and wasted the first four years of his career doing something he knew he shouldn’t have been doing.Lessons learnedQuitting can be a very important skill to exercise.If you’re considering leaving something like a job, you should quit it sooner rather than later for better life outcomes.It’s incredibly important to have access to good networks early in your career.If you have the unfair advantage of being young, relatively unattached, and the ability to relocate geographically, do it. It will expand your networks.Andrew’s takeawaysIf you’re feeling like quitting, take that seriously. Sit down, write about it, talk to someone about it, and start to take some action.Invest in the skill that you want to move into as much as you. That will help you make that transition.Actionable adviceIf you’re interested in a particular area, find other people who are really good at writing and talking about that area. Exercising that muscle over time can help open doors to building valuable networks and relationships.No.1 goal for the next 12 monthsRex’s number one goal for the next 12 months is to identify individuals building the next big companies that will change financial services and invest in 12 of the most interesting of those.Parting words “If you feel like you don’t have the skill set to affect some of these changes, put in the work.”Rex Salisbury [spp-transcript] Connect with Rex SalisburyLinkedInTwitterYoutubeBlogWebsitePodcastAndrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever Podcast

In this episode of Investment Strategy Made Simple (ISMS), Andrew and Larry discuss chapters of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this fourth episode, they talk about mistake number five: do you let your ego dominate the decision-making process? And mistake number six: do you allow yourself to be influenced by herd mentality?LEARNING: Don’t let your ego influence your decision-making. Stay disciplined and avoid becoming irrationally exuberant. “The market is a predator preying on the mistakes of investors, their egos, and their herd behavior.”Larry Swedroe In today’s episode, Andrew continues his discussion with Larry Swedroe, head of financial and economic research at Buckingham Wealth Partners. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.Larry deeply understands the world of academic research and investing, especially risk. Today Andrew and Larry discuss a chapter of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this fourth series, they talk about mistake number five: do you let your ego dominate the decision-making process? And mistake number six: do you allow yourself to be influenced by herd mentality?Missed out on previous mistakes? Check them out:ISMS 8: Investment Mistake No.1: Are You Overconfident in Your Skills?ISMS 17: Investment Mistake No.2: Do You Project Recent Trends Indefinitely Into the Future?ISMS 20: Larry Swedroe – Investment Mistakes No.3 and 4Mistake number 5: Do you let your ego dominate the decision-making process?According to Larry, logically, we make mistakes because we are human beings. One common mistake investors make is letting their egos influence their decision-making. No matter what you ask people, they all tend to think they’re better than average. Ego wants us to feel good, so we believe we’re better than average. But, the problem with ego is that it would much prefer to play a game where it only wins and never loses instead of a game where it can win or lose.Assume you’re a passive investor and put your ego aside because you know you’re unlikely to beat the market. So you choose to invest in the S&P 500, but unfortunately, it does poorly. Since you knew it could go either way, you have no one to blame except yourself.On the other hand, if you choose an active fund and it happens to outperform, you take credit for your brilliant decision to choose that active fund manager. And if it underperforms, you blame the manager and fire them. Here, the ego would much rather play a game of I win, but I don’t lose, which is what happens if you’re an active investor, not a passive one where there’s no one to blame. Larry believes that’s part of why almost half the number of investors, despite all the overwhelming evidence, choose to invest in active funds.Larry states that people with more skills have a better chance of avoiding all these behavioral mistakes. They understand the nature of the game they’re playing. They know that they’re competing against the market’s collective wisdom, which is a lot tougher to beat. This knowledge is what protects them from letting ego dominate their decision-making process.Mistake number 6: Do you allow yourself to be influenced by herd mentality?Psychologists have known for a long time that crowds can influence us. We want to own the same cars as the Joneses. The fear of missing out causes people to follow the herd very quickly. It’s what causes you to be attracted to the next new shiny thing and jump on the bandwagon. But it takes you a long time to unwind and realize the insanity of what you’re doing.The key to staying disciplined and avoiding becoming irrationally exuberant is having a thorough understanding of how markets work and knowing that bubbles eventually burst. You also need to have a well-designed roadmap to achieve your financial goals. Have an investment policy statement and set the framework under which you will be investing. Finally, have an understanding of how human behavior can impact investment decisions.About Larry SwedroeLarry Swedroe is head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management. [spp-transcript] Connect with Larry SwedroeLinkedInTwitterWebsiteBooksAndrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever PodcastFurther reading mentionedGary Belsky (January 2010), Why Smart People Make Big Money Mistakes and How to Correct Them: Lessons from the Life-Changing Science of Behavioral EconomicsAndrew L. Berkin and Larry E. Swedroe (October 2016), Your Complete Guide to Factor-Based Investing: The Way Smart Money Invests TodayJames O’Shaughnessy (November 2011), What Works on Wall Street, Fourth Edition: The Classic Guide to the Best-Performing Investment Strategies of All Time

BIO: Harvey Sawikin is the co-founder and co-manager of Firebird. Launched in early 1994, Firebird’s funds were the first dedicated to the stock markets of Russia and the former Soviet Union.STORY: Harvey invested twice in a bank and a vodka company without due diligence. Instead, he believed that other companies who had invested in those investments had done the job of verifying their viability. Harvey lost huge amounts in both investments.LEARNING: You’ll fail if you rely on someone else’s due diligence and work. The most dangerous time to invest is when it’s the easiest to invest. “Relying on someone else’s due diligence is a mistake because you never know what’s going on or when stuff starts to go wrong.”Harvey Sawikin Guest profileHarvey Sawikin is the co-founder and co-manager of Firebird. Launched starting in early 1994, Firebird’s funds were the first dedicated to the stock markets of Russia and the former Soviet Union. Harvey also co-founded the Amber funds, which do private equity in the Baltic States. Before Firebird, he was an M&A lawyer at Wachtell Lipton after attending Harvard Law School and clerking for a Federal judge. Harvey’s novel, about a young lawyer who becomes an inside trader, was published by Simon & Schuster in 1995. He lives in Manhattan with his wife of 32 years and a neurotic 15-year-old cockapoo.Worst investment everOne of the largest banks in Kazakhstan, BTA Bank, approached Harvey’s company with an investment proposal. Another fund in the region had taken a position in it. The bank was supposedly very close with management and had excellent insight into how the company would build. The company looked cheap, with a reasonable price to book, and the economy was performing well. So Harvey invested in the bank.It turns out the bank’s loan book was crooked, and there was a lot of self-dealing. The guy who was the main power behind the bank was arrested for misappropriating millions of dollars from the bank through bad loans. The bank was put into bankruptcy and was taken over by another bank. The shareholders were almost wiped out. Harvey’s company had invested $20 million and got under a million back.In another incident, Harvey was very interested in getting involved in Ukraine. When a vodka company was brought to their attention, they became keen on investing in it, especially since a famous hedge fund in New York had bought a direct position. The fund said they had maxed out how much they could take and were willing to sell Harvey part of their stake.Harvey’s company made its investment, and within two or three weeks, the vodka company released gross earnings. Its financial results were 40% below where they were supposed to be.Harvey believed they had been duped by the hedge fund and wound up litigating against them. He eventually dropped the case due to the ruinous litigation costs in England and where the loser pays. He surrendered to losing that investment.Lessons learnedYou’ll fail if you rely on someone else’s due diligence and work.Be careful when investing during a bubble because it becomes invisible to you when you’re inside it.Andrew’s takeawaysDo your own due diligence.Don’t overestimate the knowledge, skills, and persistence of other investors.The most dangerous time to invest is when it is the easiest to invest.Harvey’s recommendationsHarvey recommends Twitter as a source of real-time information as long as you follow the right people.No.1 goal for the next 12 monthsHarvey’s number one goal for the next 12 months is to hang onto his Russian positions and make sure his investors recover their money and continue to find value in the rest of Eastern Europe when the war is over.Parting words “If you don’t obsess over your mistakes, you’re not a real investor.”Harvey Sawikin [spp-transcript] Connect with Harvey SawikinFacebookTwitterInstagramWebsiteBookAndrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever Podcast

BIO: Paul Krake is a global strategist focusing on mega themes of climate, China, digitization, and demographics.STORY: Paul quit a prestigious job where he had seasoned mentors to start a hedge fund. After a few years, he realized he wasn’t mature enough or emotionally prepared to run a business on his own.LEARNING: Surround yourself with people who are more experienced than you are. Think about all the scenarios where an investment can go wrong. “For every good idea out there, there are a million ways (that you can’t think about) for it to go wrong.”Paul Krake Guest profilePaul Krake is a global strategist focusing on mega themes of climate, China, digitization, and demographics. View from the Peak, Paul’s consultancy was formed in 2011 after an 18-year career in investment banking and as a macro hedge fund manager, where he covers global institutions on these mega themes. His latest venture is Climate Transformed, a global community of climate investors, entrepreneurs, and corporate leaders who are practically implementing the $100 trillion investment required for us to achieve decarbonization and sustainability.Worst investment everPaul’s dad passed away in November 2004, and a couple of days after his funeral, Paul was sitting in his mom’s backyard at four in the morning. At that moment, he thought of the idea of starting a fund.Paul went ahead with his idea and started a hedge fund even though the timing was wrong, and it was for all the wrong reasons to follow through with this idea. There was such a high degree of emotion involved in making this decision that he didn’t really think through it and consider all that he was giving up.At the time, Paul had a prestigious job at Caxton Associates. He had the support of great mentors and trainers. He gave up all this to start his business.After about three years of running the hedge fund, Paul realized he wasn’t emotionally prepared or mature enough to do what he was doing.Lessons learnedSurround yourself with people who are more experienced than you are.Think about all the scenarios where an investment can go wrong.Think of a business as trade and have an exit strategy if it doesn’t work for X years or if you spend X amount.Andrew’s takeawaysWhen you get that wind of confidence and want to invest, take a step back and think things through.When you quit a job to start a business, you lose support and have to do it alone.Actionable adviceBefore you make any investment:Think about your processes.Consider your entry and exit position and treat everything with the same agnostic clinical approach.Always have an exit strategy for when things don’t work out.Paul’s recommendationsRecommended resources: The secret to not getting stressed over not finding ways to de-stress is to use fewer resources.No.1 goal for the next 12 monthsPaul’s number one goal for the next 12 months is to successfully roll out 30 in-person events in nine countries.Parting words “I love this. I think it’s a great way to get people to seriously think about the benefits of failing.”Paul Krake [spp-transcript] Connect with Paul KrakeLinkedInWebsitePodcastAndrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever Podcast

BIO: Noel Smith is the Chief Investment Officer of Convex Asset Management and the Head of Options Trading at Tanius Technology. STORY: Noel and his partner invested in a stock whose price kept falling. Every time the price would fall, Goldman Sachs would come in and buy like 50,000 out of the money calls. This made the partners hold onto the stock, eventually riding it to zero.LEARNING: Have risk measurements in place that you know you will not break. Have some percentage that you're willing to lose.“Learning about options and how they affect the marketplace is much more important than you think."Noel SmithGuest profileNoel Smith is the Chief Investment Officer of Convex Asset Management and the Head of Options Trading at Tanius Technology.  A member of the CME, CBOT, and CBOE, Noel has over 25 years of experience trading volatility, market making, and managing risk.  Noel was previously the CIO and Portfolio Manager of two separate Chicago-based proprietary derivatives trading firms. Additionally, he was the seed investor who financed the launch of global high-frequency trading firm GETCO LLC (KCG/Virtu), which grew to account for 20%+ of trading volume in the U.S.Worst investment everNoel and his partner had a position in Enron, the ninth largest market cap company at the time. Enron started to lose money. Each time the stock would go down 10%, Goldman Sachs would come in and buy like 50,000 out of the money calls. Such stunts would convince people, Noel included, to hold onto the stock. And so the partners kept holding onto the stock as the price went up and down. Eventually, they rode the stock to zero, losing their entire investment. Lessons learnedHave risk measurements in place that you know you will not break.Have some percentage that you're willing to lose.Andrew's takeawaysA good investor has set up a structure of how to invest and doesn’t second guess the structure.Actionable adviceYou always have to be able to see the cause and effect of everything.Noel's recommendationsNoel recommends learning about options and how they affect the marketplace.No.1 goal for the next 12 monthsNoel's number one goal for the next 12 months is to develop his business and get more people to understand why options are useful and not to be afraid of them.Parting words“Thank you for having me today. Hopefully, everyone got something out of this.”Noel SmithConnect with Noel SmithLinkedInWebsite   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  Connect with Andrew Stotz ●     astotz.com ●     LinkedIn ●     Facebook ●     Instagram ●     Twitter ●     YouTube ●     My Worst Investment Ever Podcast 

What’s interesting about Toyota is that if you buy today, you get its future growth for freeThe right time to buy might be nowICE vehicles are not going away, providing ongoing revenue supportToyota is the world’s largest car manufacturer, ranked by a composite of market cap, revenue, and employees. The company has been a leader in alternative energy solutions such as hybrids and hydrogen-powered vehicles. The prior president has said that the company will “not simply repeat the approach of other companies” when it comes to electric vehicles (EV). Toyota points out the limited battery range, scarcity of lithium resources, lack of a charging network, and consumer preferences towards internal combustion engines (ICE). And developing markets in South America, Asia, and Africa could be decades away from having the infrastructure to implement a massive EV rollout; Toyota is well positioned to grow with these markets. Over the next five years, we expect Toyota to return to its pre-pandemic average growth level and achieve a CAGR of 6.9%.Hybrid and Hydrogen leadership and more EVs coming could prove critics wrongToyota is a pioneer in the mass production of hybrid technology, having rolled out its hybrid “Prius” model in 1997, since selling more than 5m. Currently, hybrids account for about 27% of total vehicle sales. Toyota is pushing ahead with hydrogen-powered cars, currently selling its “Mirai” model. The beaten-down share price is some evidence that observers expect the company’s hydrogen offerings will eventually fail. But there is promise to the technology, and an investor could consider Toyota’s hydrogen to have an option value. Of course, Toyota has not turned its back on EVs; recently, announcing plans to invest US$70bn in electrifying part of its fleet by 2030. We appreciate Toyota’s diversified approach to transition to more carbon-neutral cars and expect total CAPEX spending of about JPY12trn over the next few years.Negative sentiment pressuring price; but at 1x PB, it might be the time to BUYThe sector is unfavorable given recession fears, as well, investors doubts Toyota’s unconventional EV policies and its ability to defend its position as the world’s largest carmaker. The company’s price-to-book ratio (PB) dropped below 1x, which is 1x std dev below its long-term average. With an average net margin of 7.8% over the past 5 years, Toyota is among the most profitable automobile companies in the world. We believe negative sentiment has been too punishing, and the stock deserves a re-rating.FY3Q23 saw strong revenue growthToyota’s 3Q23 revenue was up an impressive 25% YoY due to strong sales volume.The operating profit also grew by 22%, with the positive effect of higher sales volume more than offsetting soaring material prices.Though, the bottom line is slightly weaker YoY due to FOREX losses.Revenue structureWith 10.5m sold cars in 2022, Toyota remained the largest car manufacturer in the world. Its automotive segment, which accounts for 91% of revenue includes the production of passenger cars, commercial vehicles, and related parts.The company produces vehicles under four brands: Daihatsu, Hino, Lexus, and the namesake Toyota. Accounting for 85% of total automotive sales, Toyota was the best-selling brand.It derives 7% of its revenue from financial services. Compared to other car companies, this contribution is relatively low, meaning that Toyota generates most of its sales from its core segment of car production.Toyota gets its revenues from multiple geographic regions. In 2022, North America was the largest region in terms of revenue as it represented 35% of total revenue. Its domestic market Japan makes up 26%, followed by Asia (18%), and Europe (12%).A. Stotz Four ElementsOverall: Toyota is highly unappealing relative to 2,300 non-financial companies in Japan considering Fundamentals, Valuation, Momentum, and Risk.Fundamentals: Ranked in the bottom 30% in Japan due to low profitability driven by low margin and slow return on assets.Valuation: Neutral as it trades on considerably lower PE, and PB relative to other companies in the Japanese market but on higher EV/EBIT.Momentum: Moderately unattractive as both price and fundamental momentum are inconsistent and have not delivered convincing results.Risk: Toyota has a low current ratio and risky debt status, but consistently high times interest earned. Price risk measured in terms of beta is about the same as the Japanese market.A. Stotz Profitable GrowthProfitable Growth consistently ranked slightly below average among 930 large Consumer Discretionary companies globally. In the past 12 months, the ranking among its peers fell to #7 from #6 in 2022.Profitability shares a similar story, ranking at #6 for more than half the period. Growth has improved slightly since 2019 to #8 from #10 but can also be seen as continually dropping from #5 in 2020.Asset efficiency has ranked #9 since 2019 and constituted a heavy drag on Profitability. However, strong Expense control has been slightly effective in compensating for poor Asset efficiency. It has been the main driver of the overall Profitable Growth rank.Sales growth has ranked below average, however, in the past 12 months, it peaked at #4. Expense direction has been volatile; it dropped to #9 after a strong #2 rank in 2021.Profit and loss statementBalance sheet - AssetsBalance sheet - Liabilities and equityCash flow statementRatiosConsensus estimatesAround 2/3 of analysts are bullish on Toyota, and only 1 analyst issued a SELL recommendation.The mean target price shows about a 21% upside.In general, analysts are most bullish on BYD, with 90% of analysts optimistic that the stock will outperform in the future. The average upside is 137%.The German car manufacturer Mercedes-Benz receives a similar positive sentiment, with around 80% of analysts issuing a BUY recommendation. They expect a solid upside of 32%US car giant Ford has the least favorable rating. 25% of analysts say it’s a SELL.Relative valuationThe trailing price-to-book ratio (PB) shows that Toyota is trading 1x std dev below its long-term average of 1.2x. And it has recently fallen below 1.0x.On the forward 2024E PB multiple, Toyota trades at a massive discount to the Consumer Discretionary sector in Japan. The gap between Asia and World is even higher, making Toyota appear cheap.I expect its return on equity (ROE) of 10% to be slightly above Japanese and Asian sector averages, which leads Toyota to trade at a deep discount based on the 2024E PB-to-ROE multiple.If we were to revalue Toyota to the 2024E PB-to-ROE multiple of Japan, the company would deserve to trade at a 2024E PB of 1.4x. This would lead to a value estimate of JPY3147, or 75% higher than the current share price. Based on that, Toyota seems to be massively undervalued.Though, we have chosen to use a DCF-based valuation to value Toyota.Free cash flow dataValuation and target priceWe assume a risk-free rate of 1% and a market equity risk premium for the Japanese market of 10% like its recent past.Toyota has been performing in line with the market; thus, we assume a beta of 1x. We forecast a capital structure with 44.6% debt to total capital, in line with the current level. This results in a WACC and a discount rate of 6.4%. We use a terminal growth rate of 1% and use Free Cash Flow to Firm (FCFF) to value Toyota.Our base case assumes a gross margin of 18.2% p.a. until 2027E, resulting in a value of JPY2,509 per share based on the FCFF methodology. A 40% upside compared to the current market price.In our sensitivity analysis (see next page), our optimistic case assumes a gross margin of 20.2 p.a. until 2027E. If Toyota were to deliver that target, the value derived from FCFF would be JPY2,802. In our pessimistic case, we look at if Toyota’s gross margin were only 16.2% per year. Then the value would be JPY2,214 per share, which still allows for plenty of upside.Sensitivity analysisMain risk is the failure to adapt to the industry trendsFailure to adapt to the industry trendsWe built our forecast around the fact that Toyota’s decision to delay the full shift to EVs is a wise decision and also around the fact that it would be successful in its endeavors toward hybrids, electric, and hydrogen fuel cars. Any sudden change in consumer preferences would hurt the company’s short-term results. Also, any failure in the production of its new hybrid, electric, or hydrogen fuel cars would hurt the automaker’s long-term results. Toyota recently offered to buy back its new electric SUV (BZ4X) from its owners because of a severe problem: the wheels could fall off while driving even after just a short time on the road! Anything like that would drag down our target price and affect the company’s position in the market.Soaring raw material pricesPrices of raw materials such as cobalt, lithium, and nickel have surged. In May 2022, lithium prices were over seven times higher than at the start of 2021. Unprecedented battery demand and a lack of structural investment in new supply capacity are key factors. Russia’s invasion of Ukraine has created further pressure since Russia supplies 20% of global high-purity nickel. Also, China produces three-quarters of all lithium-ion batteries and is home to 70% of the production capacity for cathodes and 85% of the production capacity for anodes (both are key components of batteries), so if geopolitical tensions lasted long it would cause huge drops in the company’s margins and disruptions in its supply chain.Concentration of suppliersAutomakers must rely on suppliers of cheaper raw materials to succeed in the automotive industry. But, Toyota depends on a limited number of suppliers, whose replacement with others may be difficult, exposing the company to a wide range of risks. Any loss of an important supplier or inability to obtain materials in a timely and cost-effective manner could lead to increased costs or delays in Toyota’s production and deliveries, which would hurt the company’s revenues and margins. Nonetheless, Toyota has managed to build great relationships with its suppliers which reduces the risk of losing them. Click here to get the PDF with all charts and graphs Andrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever Podcast

BIO: Guillermo Cornejo is the CEO of Riders Share, the Airbnb of motorcycles he started while attending grad school at UCLA.STORY: Guillermo had an insurance company handling claims for his customers. When he realized the insurance company had a 50% profit margin, he decided to start his own insurance business. This became a costly and challenging venture because he had no experience handling claims.LEARNING: Don’t underestimate the value of experience. “Whenever somebody is talking to me about any industry, I'm all ears. I know I know nothing.”Guillermo Cornejo Guest profileGuillermo Cornejo is the CEO of Riders Share, the Airbnb of motorcycles he started while attending grad school at UCLA. Before that, he worked in analytics roles for GM, Nissan, and Hyundai. He grew up in Peru and enjoys anything that makes your heart race.Worst investment everGuillermo launched his company in 2018, and it grew immensely. The company booked over a million dollars in rentals within the first year. Guillermo was on top of the world.The company was working with an insurance partner with pretty good rates but was providing terrible service to Guillermo’s customers. It took many months to handle the claims. When Guillermo looked at his company’s history of accidents and measured the cost of paid-out claims and how much he had paid the insurance company in premiums. He found the insurance company was making a 50% margin in profits. This got Guillermo thinking he should do it himself.Guillermo raised some capital and used most of it to set up an insurance company. This was an expensive venture (millions of dollars). The more the company grew, the more bad customers it attracted—from risk-takers to fraudsters trying to steal his motorcycles. On top of that, he realized how difficult it was to handle claims, and just like the insurance partner, it took him months to pay out claims.Lessons learnedDon’t underestimate the value of experience.Andrew’s takeawaysDon’t let overestimation bias mislead you into thinking you can do more than you’re capable of.Try to shift your mind from I think I know something to I know I know nothing.Actionable adviceDon’t overestimate your skills, abilities, and knowledge. Work with advisors and connect with more experienced people who have done it before. They will help you understand how much you don’t know and then try to fill that gap.Guillermo’s recommendationsGuillermo recommends reading Factfulness: Ten Reasons We’re Wrong About the World--and Why Things Are Better Than You Think, co-authored by a previous guest on our podcast, Anna Rosling Rönnlund.No.1 goal for the next 12 monthsGuillermo’s number one goal for the next 12 months is to double his company revenues while remaining profitable. [spp-transcript] Connect with Guillermo CornejoLinkedInFacebookTwitterBlogWebsiteAndrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever Podcast