My 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

BIO: Eugene Ng is the Founder and Chief Investment Officer of Vision Capital & Vision Capital Ventures. He is also the author of the Amazon best-selling book Vision Investing: How We Beat Wall Street & You Can, Too!STORY: Eugene invested in a three-day course in a bid to accelerate investment learning. The course involved playing a simulated stock investment game. Eugene lost in the early stages of the game due to overconfidence.LEARNING: It’s okay to make a mistake. Keep playing the long-term game of investing. “If you want to invest long term, avoid playing Russian roulette. You don’t want to be a hero and then end up in a cemetery sooner or later.”Eugene Ng Guest profileEugene Ng is the Founder and Chief Investment Officer of Vision Capital & Vision Capital Ventures. He is also the author of the Amazon best-selling book Vision Investing: How We Beat Wall Street & You Can, Too! He also teaches investing once a year to educate new investors and to give back.Born and raised in Singapore, Eugene studied economics and finance and received his Summa Cum Laude from the Singapore Management University in 2008.Eugene’s career in finance spans over 11 years. His career started in 2008, joining Citi as a Management Associate for 3 years. Subsequently, he was with J.P. Morgan providing FX and Interest Rates sales & advisory for corporates for over 8 years, where he was a Vice-President.Worst investment everEugene had a near-death accident when he broke his neck almost ten years ago. While intoxicated, he decided to do a somersault into a very shallow swimming pool. Eugene broke the top of his head after hitting the bottom of the swimming pool. This type of injury is so severe that 99% of people who get it die, and of those who survive, 99% become paralyzed in some form or another.After that near-death incident, Eugene got thinking about what to do with his life. Before the accident, he was living a meaningless life and just wasting his money. Being a reasonably logical, curious person, who is also fairly good at numbers, Eugene decided to look into investing. He had never even read an investing book. Now he wanted to master investing. Instead of reading books, taking time to figure it out, and making costly mistakes over a period, he took a different route to accelerate his learning. Eugene decided to pay for a three-day investing course.The participants played a simulated stock investment game on the second day of the investing course. They were given five stocks to choose from, of which the financials were provided. They were to play this for ten rounds. A participant could decide to buy or sell each round. There was an additional advantage; a participant could take up to 10 times leverage on the limited amount of capital they had to buy the stocks.Eugene believed he was brilliant, having been in finance and banking. So in round one, he chose three of the five companies, equally split them, and took the maximum leverage possible. So he took 10X his capital. The stock was 10% up, making Eugene one of the few winners of the 60 participants. Then the second round came, and the stock market was up again by 20%. Suddenly, Eugene was the top guy in his class due to his power of leverage. When round three came, a massive stock crash occurred due to a recession, and the market was down 50%. He was completely wiped out. As the game continued through ups and downs, there were just a handful of people left, and ultimately, only one was left.While this was a simulated game, and Eugene didn’t lose anything in reality, the kick to his ego tore him apart mentally.Lessons learnedIt’s okay to make a mistake, especially early on.Don’t use margin, leverage, or complicated derivatives, no matter how attractive they are.Don’t sell short.Keep playing the long-term game of investing.Andrew’s takeawaysOverconfidence bias will lead to poor investment decisions.There’s no point in playing a game with an unlimited downside.Actionable adviceAvoid making the same mistakes that Eugene made.Eugene’s recommendationsEugene recommends reading his book Vision Investing: How We Beat Wall Street & You Can, Too!, where he shares his learnings and lessons so you can invest better and beat the market.No.1 goal for the next 12 monthsEugene’s number one goal for the next 12 months is to start his journey of investing full-time. He wants to build a hedge fund and manage capital for others and himself.Parting words “Figure out what game you want to play in investing. Do that well, and you’ll never be wiped out.”Eugene Ng [spp-transcript] Connect with Eugene NgLinkedInTwitterInstagramWebsiteBlogBookAndrew’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

Will the global CPI slowdown continue?Global MarketsGlobal CPI is falling fast in both DM and EMsEconomies across the world have a GDP of about US$90trn and an average CPI of 6.2%DM CPI was 5.7%EM CPI was 6.9%World CPI was 6.2%, down 0.4ppts from one year ago; MoM it was down 0.8pptsDM CPI was 5.7%, down 0.9ppts from one year ago; MoM it was down 0.8pptIt has moved from being in line with World CPI last year; to the current 0.5ppt discountEM CPI was 6.9%, which is about flat vs. one year ago; MoM it was down 0.8pptIt has moved from being in line with the World CPI last year; to the current 0.7ppt premiumDeveloped RegionsDM Americas CPI is falling fast, DM Europe is sliding, DM Asia is on a steady riseDM Americas is the largest, with US$25trn of GDP and 4.9% CPIDM Europe has US$14.9trn GDP and 7.1% CPIDM Pacific has US$7.6trn GPD and 4.7% CPIDM Americas CPI is falling fast, DM Europe is sliding, DM Asia is on a steady riseDM Americas CPI was 4.9%, down 3.4ppts from one year ago; MoM it was down 1ppts.It has moved from a 1.7ppts premium to World CPI last year; to the current 1.3ppts discountDM Europe CPI was 7.1%, up 0.9ppts from one year ago; MoM it was down 1.1ppts.It has moved from a 0.5ppts discount to World CPI last year; to the current 0.9ppts premiumDM Pacific CPI was 4.7%, up 2.4ppts from one year ago; MoM it was up 0.4ppts.It has moved from a 4.4ppts discount to World CPI last year; to the current 1.5ppts discountEmerging RegionsEM Europe and Asia CPI falling; Middle East & Africa, and Frontier markets are still on fireEM Americas had a small GDP of US$3.8trn and CPI of 7%EM Asia had a massive GDP of US$25.7trn and 1.9% CPIEM Europe had a small US$3.9trn GDP and a massive 17.7% CPIEmerging Middle East & Africa had a tiny US$1.7trn GDP and a high 11.5% CPIFrontier markets had a US$2.9trn GDP and an extremely high 31.2% CPIEM Europe and Asia CPI falling; Middle East & Africa, and Frontier markets are still on fireEM Americas CPI was 7%, down 2.4ppts from one year ago; MoM it was down 0.8ppts.It has moved from a 2.6ppts premium to World CPI last year; to the current 0.7ppts premiumEM Asia CPI was 1.9%, down 0.6ppts from one year ago; MoM it was down 0.4ppts.It has moved from a 4.1ppts discount to World CPI last year; to the current 4.3ppts discountEM Europe CPI was 17.7%, down 6.1ppts from one year ago; MoM it was down 5ppts.It has moved from a 17.1ppts premium to World CPI last year; to the current 11.4ppts premiumEM ME&A CPI was 11.5%, up 6.4ppts from one year ago; MoM it was up 0.4ppts.It has moved from a 1.5ppts discount to World CPI last year; to the current 5.3ppts premiumFrontier CPI was 31.2%, up 14.7ppts from 1yr ago; MoM up 0.3pptsIt has moved from a 9.9ppts premium to World CPI last year; to the current 25ppts premium. This region was up YoY and MoMDeveloped CountriesOnly US CPI fell YoY; all top 5 DM countries, except Japan, fell MoM; UK CPI is double the USTop five DM countriesUS GDP was US$23trn, CPI of 5.0%Japan US$4.9trn and 3.9% CPIGermany US$4.2trn and 7.5% CPIUK: US$3.2trn, 10.2%France: US$2.9trn/5.8%USA CPI was 5%, down 3.5ppts from one year ago; MoM it was down 1ppts.It has moved from a 1.8ppts premium to World CPI last year; to the current 1.2ppts discountJapan CPI was 3.9%, up 2.7ppts from one year ago; MoM it was up 0.6ppts.It has moved from a 5.5ppts discount to World CPI last year; to the current 2.3ppts discountGermany CPI was 7.5%, up 1.9ppts from one year ago; MoM it was down 1.3ppts.It has moved from a 1.1ppts discount to World CPI last year; to the current 1.3ppts premiumUK CPI was 10.2%, up 3.1ppts from one year ago; MoM it was down 0.4ppts.It has moved from a 0.4ppts premium to World CPI last year; to the current 4ppts premiumFrance CPI was 5.8%, up 1.3ppts from one year ago; MoM it was down 0.6ppts.It has moved from a 2.1ppts discount to World CPI last year; to the current 0.4ppts discountEmerging CountriesBig CPI fall in Russia, China, and India; more minor falls in Korea and BrazilChina: US$17.5trn/0.6%India: US$3.2trn/5.6%Korea: US$1.8trn/4.3%Russia: US$1.8trn/3.6%Brazil: US$1.6trn/4.7%China CPI was 0.6%, down 0.9ppts from one year ago; MoM it was down 0.3ppts.It has moved from a 5.2ppts discount to World CPI last year; to the current 5.6ppts discountIndia CPI was 5.6%, down 1.5ppts from one year ago; MoM it was down 0.8ppts.It has moved from a 0.4ppts premium to World CPI last year; to the current 0.6ppts discountKorea CPI was 4.3%, up 0.2ppts from one year ago; MoM it was down 0.6ppts.It has moved from a 2.6ppts discount to World CPI last year; to the current 2ppts discountRussia CPI was 3.6%, down 12.9ppts from one year ago; MoM it was down 7.5ppts.It has moved from a 9.8ppts premium to World CPI last year; to the current 2.7ppts discountBrazil CPI was 4.7%, down 6.5ppts from one year ago; MoM it was down 0.9ppts.It has moved from a 4.5ppts premium to World CPI last year; to the current 1.6ppts discount 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: Nick Maggiulli is the Chief Operating Officer and Data Scientist at Ritholtz Wealth Management, where he oversees operations across the firm and provides insights on business intelligence.STORY: Nick invested in a stock he wasn’t familiar with just because his friends were doing it. He suffered a 78% loss.LEARNING: Don’t buy individual stocks. Trust your gut. “If you’re going to gamble, just wager less.”Nick Maggiulli Guest profileNick Maggiulli is the Chief Operating Officer and Data Scientist at Ritholtz Wealth Management, where he oversees operations across the firm and provides insights on business intelligence. He is also the author of OfDollarsAndData.com, a blog focused on the intersection of data and personal finance. His work has been featured in The Wall Street Journal, CNBC, and The Los Angeles Times. Nick graduated from Stanford University with a degree in Economics and currently resides in New York City.Worst investment everIt was the summer of 2021, and Nick was having a great night with some friends. One of his buddies, who’s pretty good at stock picking, told the group about this new exciting stock called Matterport (MTTR). Matterport is a virtual reality software that allows you to do 3D imaging of a room.Up until this point, Nick had primarily been a passive investor. The friend convinced the group to invest in Matterport, saying it would be big. Nick put in about 1% of his net worth. The group didn’t do much research. They just discussed the stock in a group chat for a day or two. They didn’t pay attention to it anymore.Over the next few months, the stock starts going up. Nick got excited about the surprising stock performance. He happened to attend an art show in New York. Coincidentally, the gallery was using Matterport to give a tour of their art venues. This was so wild and got Nick even more excited.The stock kept going up, and by November 2021, it had doubled. Nick bought it for $15, and now it was $30. At this point, everyone in the friends’ group doubled their investment.The peak was in November, and then the price started to decrease slightly. Nick figured it was no big deal, as every great winning stock has a decline. So he held onto the stock. The price kept going down. Nick sold his stock in October 2022 at $3.30 a share, making a 78% loss.Lessons learnedDon’t buy individual stocks.Trust your gut.Andrew’s takeawaysWhen you get invested in something, you’ll find every possible reason to justify it.There are a lot of times that we know stuff that we’re not supposed to do, yet we somehow end up in it.Actionable adviceIf you’re going to gamble, make sure you know exactly how much you’re willing to lose.Nick’s recommendationsIf you want to learn about individual stocks, Nick recommends reading Scale: The Universal Laws of Life, Growth, and Death in Organisms, Cities, and Companies. The book talks about the growth of cities, companies, and that type of stuff. To understand asset allocation, Nick recommends books by William Bernstein. He also recommends reading his book Just Keep Buying: Proven ways to save money and build your wealth if you want to learn the risks of investing in individual stocks.No.1 goal for the next 12 monthsNick’s number one goal for the next 12 months is to expand his blog’s SEO traffic.Parting words “Keep buying.”Nick Maggiulli [spp-transcript] Connect with Nick MaggiulliLinkedInTwitterInstagramWebsiteAndrew’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 a chapter of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this third episode, they talk about mistake number three: Do you believe events are more predictable after the fact than before? And mistake number four: do you extrapolate from small samples and trust your intuition?LEARNING: Know your investment history. Don’t be subjected to confirmation or recency biases. “The key to long-term success is having a deep understanding of history and not being subjected to recency bias.”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 third series, they talk about mistake number three: do you believe events are more predictable after the fact than before? And mistake number four: do you extrapolate from small samples and trust your intuition?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?Mistake Number 3: Do you believe events are more predictable after the fact than before?People often believe that events are more predictable before the fact than after. Larry says this is a big investment problem because it leads to overconfidence. After all, investors think they know what the outcome is.To avoid making this mistake, Larry’s advice is not to act immediately because if you do, you’re likely acting based on irrational fears. You don’t know the investment history and have a confirmation bias. The cure for this bias of believing events are inevitable is to think before the fact when the events are far from certain, let alone inevitable.Before you invest, Larry says you should keep a diary. Write down what you think will happen and compare it with the results after the fact. This analysis shows that you don’t know the future any better than anyone else. Your crystal ball is just as blurry. So don’t try to make forecasts based on your views because you think events are predictable.Mistake Number 4: Do you extrapolate from small samples and trust your intuition?People make investment judgments based on small samples, typically recent ones. For example, growth dramatically outperformed small-value stocks in 1997, 98, and 99 because of the Dotcom bubble.So people judging by that small sample didn’t look at the long-term historical evidence, showing a 20% chance that growth will outperform small value over any three-year period. At five years, the likelihood drops to 15%. At 20 years, the chances of this happening are between 3% and zero. So there’s always a chance that growth will outperform small value, but the longer the period, the less likely it will happen.Larry insists that you have to know your investment history. Whenever you see a small sample, look at the long-term data and remember that when investing in risk assets, three years is a very short time, and five years is still a pretty short time. You need much longer periods. The key to successful investing is not intelligence; it’s patience.Final thoughts from LarryKnow your investment history and keep that diary every time you make a forecast.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: As an accomplished entrepreneur and respected leader in the fintech industry, Larry Shumbres’s mission is to continuously enhance the investing experience for both advisers and investors through innovative technology.STORY: Larry tried to create a hedge fund, 50% tied to digital gold and 50% tied to the top five cryptocurrencies but faced so many setbacks in the process. He spent too much time and money on this venture, which never paid off.LEARNING: Don’t try to build an investment product around an unregulated industry. Don’t invest in what you don’t know. “If you don’t know anything about private equity, derivatives, or options, don’t do it. First, learn how it works and then look to invest in it.”Larry Shumbres Guest profileAs an accomplished entrepreneur and respected leader in the fintech industry, Larry Shumbres’s mission is to continuously enhance the investing experience for both advisers and investors through innovative technology. He is recognized as an industry expert and has over 20 years of fintech experience with companies such as Charles Schwab, Morningstar, and New York Life Investments.Most recently, Larry founded, built, and exited Totum Risk, a leading risk tolerance platform for the financial industry, through its acquisition by TIFIN. Before Totum, Larry built SmartVision by eVestment, which was later acquired by Nasdaq. He also led the sales team at eMoney before its acquisition by Fidelity.Worst investment everIn 2017, Larry had the idea of building a hedge fund, 50% tied to digital gold and 50% to the top five cryptocurrencies based on market cap. He put a lot of time and money into it. Larry had another business partner that was also putting time and money into it. He even had some friends and family money tied into this venture.Larry completed the private placement memorandum (PPM) to enable him to sell the product and have investors review it. Larry faced a couple of problems during this whole process. One, he didn’t have a track record. Two, he couldn’t sell the product in the United States. Three, it was impossible to distribute the product in other countries that had their own rules and regulations.So after spending a lot of money on attorneys, consultants, rules and regulations, and licenses, it got to the point where it wasn’t worth it. So Larry shut it down and lost the money.Lessons learnedDon’t try to build an investment product or tool around an unregulated industry.Anything that the SEC hasn’t approved is a big risk.Andrew’s takeawaysRevenue is everything. As a startup, your number one goal is to get your revenue up as fast as possible.Actionable adviceWhether you’re an entrepreneur or an investor, investing in what you know and what is regulated is wise.Larry’s recommendationsTo review any investments, Larry recommends going to large financial institutions like Schwab, Fidelity, Vanguard, JPMorgan, Chase, etc. Such institutions have a plethora of information to help you learn about investments. But more importantly, if you don’t have a passion for investments, Larry recommends partnering with a financial advisor to help you invest and plan for any life events and goals.No.1 goal for the next 12 monthsLarry’s number one goal for the next 12 months is profitability. The company is also planning to install its machine learning use cases in AI to widen its moat and be the leader in the industry.Parting words “If you’re an advisor, check out Presults.com, and if you’re an investor, do your homework.”Larry Shumbres [spp-transcript] Connect with Larry ShumbresLinkedInTwitterWebsiteConnect with Vincent DeluardLinkedInTwitterWebsiteAndrew’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: After starting his career at Bear Stearns and then co-founding a multi-billion-dollar hedge fund firm, Jesse Felder left Wall Street to focus his energies on research and writing. Today he publishes The Felder Report and hosts the Superinvestors podcast.STORY: Jesse found a cigar butt stock that was cheap and performed extraordinarily well in just a few months after he took a pretty sizable position. A friend convinced him to hold the stock long-term instead of short-term as he had planned. Government legislation affected the business, and Jesse lost about 50% of his investment.LEARNING: Don’t rationalize a bad trade; get out. Be very careful when you’re in a situation that’s being primed by the government. “When you’re in a situation that’s not working out as you would hope, rather than dig the hole deeper, move on and find something different.”Jesse Felder Guest profileAfter starting his career at Bear Stearns and then co-founding a multi-billion-dollar hedge fund firm, Jesse Felder left Wall Street to focus his energies on research and writing. Today he publishes The Felder Report and hosts the Superinvestors podcast.Worst investment everAbout 10 years ago, Jesse came across an idea that seemed to tick all the boxes for a cheap stock. It looked really compelling. The company was Corinthian College, a for-profit college in the US. The company was a reputable business and had excellent profit margins. The stock was trading about three times the cash flow.From a technical standpoint, the stock seemed like it would turn around positively, so Jesse took a pretty sizable position. The stock did nothing for the next couple of months. However, it took off the following year and doubled in a very short period. In fact, it went 150-200% up. All along, Jesse knew this was a cigar butt stock, and the plan was to hold it short-term.One of Jesse’s friends, whom he was managing money for at the time, called him and said he’d never owned a stock that performed so well in such a short period. The friend asked Jesse to hold the stock for at least a year. Initially, Jesse wanted to take the profits. After his friend’s call, he rationalized why he should keep it longer. Jesse held on to it and kept monitoring it.As time passed, it became clear that the Obama administration would limit for-profit colleges’ ability to offer government-subsidized student loans. This was essentially a death knell for these companies. If their students couldn’t get debt financing to pay tuition, they would go out of business because that was 90% of the people borrowing money to pay tuition. Jesse naively thought there was no way the government would put an entire industry segment out of business.Jesse kept holding on to the stock and reinvested all of the gains. The stock went down about 50% below Jesse’s purchase price. He finally sold the stock before the company went out of business. This ended up being one of the worst losses that Jesse has taken as an investor.Lessons learnedDon’t let your thesis migrate. You need to remember why you bought something and always ask yourself if it’s working out how you anticipated it.Don’t rationalize a lousy trade; get out.Never underestimate the government’s willingness to put an entire industry out of business if it serves a political or economic purpose.Ego has no place in investing. It can be very dangerous.Andrew’s takeawaysBe very careful when you’re in a situation primed by the government, particularly in an industry where the potential customers are poor.Tax is not a good motivator for building a position.Actionable adviceLearn to be proud of yourself for taking losses early. Focus on risk, and the gains will take care of themselves.Jesse’s recommendationsJesse recommends following him on Twitter, where he shares some of the most exciting things that he’s found, such as articles and charts.No.1 goal for the next 12 monthsJesse’s number one goal for the next 12 months is to focus on what he loves to do. He’ll continue plugging away, put his best efforts forward, and whatever happens happens.Parting words “This has been a lot of fun, and I really appreciate the opportunity. You made this very enjoyable.”Jesse Felder [spp-transcript] Connect with Jesse FelderLinkedInTwitterBlogWebsitePodcastConnect with Vincent DeluardLinkedInTwitterWebsiteAndrew’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

Remember that CPI is not inflationMar 2023 US CPI was 5%, down from 6% in Feb and off its June 2022 peak of 9.1%Mar 2023, the food component was up 8.5% but has come off its Aug 2022 11.4% peakMar 2023, the energy component was down 6.4, a massive fall from its 41.6% June 2022 peakIn Mar 2023, all other items were flat MoM at 5.6%, down from Mar 2022 6.5% highWithout a surge in oil US, we forecast CPI could end 2023 at 4%Two things that could derail YE23 4% …An oil price surge would push end-2023 slightly higher than 4%, but only slightly because it takes a few months for an oil price rise to impact CPIA US recession could quickly bring CPI below 4% 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