My Worst Investment Ever Podcast

Kirk Chisholm is a known risk taker when it comes to investing and alternative investments. Being a person of full will and perseverance to know the ups and downs of the market, he has learned a lot through experience – good and bad. Currently, he is a principal and wealth manager at Innovative Advisory Group, an independent registered investment advisor (RIA) in Lexington, Massachusetts, in the United States.  Since 1999, he has used his influence to promote change in different aspects of the wealth management industry, manage risks and provide options for investors. Kirk has been acknowledged by different investment sectors for his passion for learning and imparting them to others. His ideas are frequently sought out by the media. In fact, Kirk made it to Investopedia’s top 100 - at number 7 - as the most influential financial advisor. Moreover, Investment News recognized him as one of the top 10 social media all-stars in the financial services industry. He also is the host of The Money Tree investing podcasts, which aim to teach listeners how to have their money work for them.   “The best investors will acknowledge that [truth] and they’ll tell you: ‘I’m wrong a lot. I’m just quick to make a change when I’m wrong’.” Kirk Chisholm   Worst investment ever Analyst perspective and promising reports Kirk can has had numerous bad investments, but just like any of us, one will always stand out. Considering its pertinence to the present global economic situation, he shares his story of investing internationally, in a Chinese coal company. Ten years ago, a friend of Kirk’s, who happens to be a financial analyst, visited a coal company in China. His friend and his team saw directly how operations were carried out. They talked to people, did extensive research, and finally drew the conclusion that this investment had a potential for growth once it was regulated and operated by more astute parties. Having read the reports and in the belief that it is always best to have a reliable team of analysts, Kirk was attracted to investing in the company. For him, researching is one of those tasks that must include a lot of due diligence and should be done by more than one person so it can produce thorough and accurate information. Analyst reports on China investment hide painful truth While every box was checked and all operations had been carefully looked into, a short-seller’s report came out of the blue. At first, Kirk did not take this as a serious warning to reconsider his decision about the investment. Based on his experience, short-sellers are not always reliable. He was also looking for a yield potential of 36% on selling. However, at a certain point, the company halted trading and he tried to limit his losses but to no avail. He found out that the reports presented to him were dishonest. The company had failed to disclose that the company’s shares were used as collateral in order to secure a loan from a private equity firm. Technically, the shares on the US exchange were worthless, and a great deal of money was lost. Poor research and cultural differences This was the point of no return. Kirk had already invested and his money was nowhere to be found. He could have chosen to report the matter to the authorities and file a lawsuit, but the company was on the other side of the Pacific, which made that option extremely difficult and cost prohibitive. Moreover, he believes that cultural differences played a major part in his failure. A property right is treated with as much respect in China as it is fundamental in the US (and most of the developed world).   Lessons learned Risks are inevitable As an investor, Kirk is aware that no matter how prepared a person is in a new venture, risks are always there. Likewise, with investing internationally, the risks are greater and mostly beyond research. Risk management is essential in order to plan for, avoid and guard against loss. He has learned to acknowledge these risks and turn them into a beneficial lesson. In some cases, he encourages people to use other options and explore them before sealing a deal. Alternative investments are good, but the risks involved should be considered in advance. Home-country bias must be considered well Investing internationally made Kirk realize that everyone places more importance in areas they are familiar with – their home turf.  The cultural differences between investors and companies should be assessed first since what is significant for you may not be as precious to members of another culture. Statistics show that investors are much more likely to pour their money into businesses in their own country. So, for you to manage your risk, look for investment opportunities in your country first before exploring other lands. Invest in what you know Kirk quotes Former Fidelity fund manager Peter Lynch, who wrote phenomenal books in the 1980’s and 1990s, such as Learn to Earn, reiterating the lesson of staying within your comfort zone (your home country) and investing in industries in which you have extensive knowledge.   Andrew’s takeaways The risks that really matter are the ones we can’t see The more dangerous risks are those that are not visible at first glance. Corporate governance is a great example. In such instances, the scorecard may shift on how good or bad a company is, but not everyone can notice it. Financial analysts don’t reveal everything at events or company visits, which makes it hard to predict the true situation of a company.   Actionable advice Take a look at the contrarian view Kirk does not deny the fact that we are not 100% right all the time. He admits that even the smartest people make mistakes; but the best ones look at how they’re wrong and how to improve on it always make a difference. Assess, assess and reassess Kirk emphasizes the critical need for constant reassessment, no matter where you are in the investment process. Logical decisions should be based on facts and not on emotions. Furthermore, once a deal becomes potentially damaging, one has to look for closure and not to be emotionally tied into it.   No. 1 goal for the next 12 months To become a better leader, mentor and coach to his followers. He is very passionate about imparting his own lessons to others.   Parting words Kirk says there is no growth without struggle. He believes that people learn not only from their wins, but more from their losses, or the losers that they meet along the way. He added that Andrew’s podcast is something that is in line his passion because provides options for listeners to gain knowledge from real-life situations. Also, as a parting gift, he offers here a free report about his top-75 alternative investments. “There is no growth without struggle.” Kirk Chisholm     You can also check out 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 You can also check out Andrew’s online programs Valuation Master Class Women Building Wealth The Build Your Wealth Membership Group Become a Great Presenter and Increase Your Influence Transform Your Business with Dr. Deming’s 14 Points  Connect with Kirk Chisholm LinkedIn Twitter Website Blog Connect with Andrew Stotz Astotz.com LinkedIn Facebook Instagram Twitter YouTube My Worst Investment Ever Podcast Further reading mentioned Peter Lynch (1996) - Learn to Earn: A Beginner’s Guide to the Basics of Investing and Business  

Raoul Pal is a former hedge fund manager who retired at 36 and is co-founder of Real Vision, a financial media company offering in-depth video interviews and research publications from the world’s best investors. He has run a successful global macro hedge fund, co-managed Goldman Sachs’ hedge fund sales business in equities and equity derivatives in Europe, and helped design the BBC TV program Million Dollar Traders, training participants in investment and risk management strategy. Raoul retired from managing client money and now lives in the Cayman Islands, from where he manages Real Vision and writes The Global Macro Investor, a highly regarded original research service for hedge funds, family offices, sovereign wealth funds, and other elite investors.   “Have a framework, use your framework. But do test your framework because it does change. Your framework will keep you on the straight and narrow.” - Raoul Pal   Worst investment ever On top of the global macro hedge fund game Raoul started The Global Macro Investor in 2005. He was managing his own money as well as advising many of the world’s top hedge funds, family offices, sovereign wealth funds, etc. He had a pretty good first year out of the gate. His business did phenomenally even in the second year. He was at the top of his game. Around 2007, having understood how the market works, he switched from a long emerging market position to a short emerging market position, a decision that scaled his business to success. By 2008, he had made a huge reputation for himself because his business was thriving and he’d lived and breathed the Asian financial crisis. Where macro is concerned, Raoul had made it. Surviving the global financial crisis The global financial crisis hit the global markets in 2007 and 2008. Most hedge funds barely made it out alive but Raoul was one of the hedge-fund investors who survived the crisis during these years. How did he do it? Raoul has a framework through which he follows and analyzes global economies. It is the framework that allowed him to nail the whole situation going into the crisis. Most economists build a linear model of GDP, which Raoul believes is ridiculous. He’s more of an applied market economist. Raoul’s framework involves observing markets in conjunction with economies and looking for opportunities between the two. The framework worked for him because when you look at the yearly rate of change of oil, gold, copper, the stock market or emerging markets, they’re all the same, they’ll go up and down with the US business cycle. So he’d use something like the Institute for Supply Management (ISM) supply management survey, a poll of purchasing managers in the US, to give him an idea of whether they are more or less confident in the economy. This helped him sail through the storm. Overconfident, he ignores his faithful framework Come 2009, things were different. No one was sure whether they were through the worst of it or not. At this point, unlike the other times, Raoul ignored his framework, which was suggesting that the business cycle had probably bottomed out. Not certainly, but probably. In his view, some hurdles could worsen the cycle. He believed that it was going to go lower. While his framework was telling him that the business cycle would not bring him any return, he believed that there would be probabilistic outcomes and that risk would return to the markets and he’d make some recovery. This never happened. After a series of four years of the best returns he’d ever had, 2009 became by far the worst year he’d ever had investing, and in advising. The market never recovered that year and so his investment didn’t bring him any of the returns he had calculated. Eurozone crisis comes knocking Raoul was able to recover from the worst investment of his life, but psychologically it took a few years to regain his faith. The 2012 Eurozone crisis made it even harder for Raoul to recover from his loss. During that crisis, he was living in Spain. Things were so bad he was having to buy food and store it. The markets were shaky and there was no guarantee that the banking system would last. Greece had imploded, and the Cyprus banking system had shut down entirely. So it was an extraordinary time. It was hard to escape the psychological trauma of the loss he had incurred in 2009. Thankfully, he was able to return to his hedge fund management glory in 2013, 2014, and 2015.   Lessons learned Put odds in your favor Nothing is a certainty so always put odds in your favor and not against you. Raoul admits that he should have seen something negative in the market and taken on less risk than he did. Luck doesn’t always strike twice The very thing that has given you the best returns of your life is the very thing that can bite you. Raoul had gone against the crowd several times in 2007 and 2008, and this had made an extraordinary return for him. So understandably, after winning consistently, he became overconfident. He went into that phase thinking, “No, I’m right, I can override this”, even when his framework was telling him that the odds were against him. Yep. This time luck wasn’t on his side.   Andrew’s takeaways Confidence can lead to overconfidence Confidence is something that builds over time as we invest or as we do anything. And unfortunately, confidence sometimes leads to overconfidence. This is one of the most classic behavioral biases that you always have to be careful about. If you’re overconfident, the market will teach you a lesson. Frameworks don’t always work Frameworks work during certain times, and sometimes they don’t. You don’t have to abandon your framework but always question it. Don’t let emotions get in the way It is so easy to get caught up in the emotion of success, the emotion of failure, and the emotion of trying as an investor to take a bet. It’s your job to find something that the rest of the market doesn’t see and take a strong view on it. But sometimes we let our emotions get in the way and we forget to look at things objectively.   Actionable advice Have a framework and use it. Different people have different frameworks that work for them. Stick to your framework, do test it, have faith in it, and understand how it’s going to work.   No. 1 goal for next the 12 months Raoul’s life is currently tied up in Real Vision, and this incredible journey of creating the Netflix of finance. His main goal is to create the world’s best financial video content that’s all about storytelling and engagement. He wants to make finance interesting and unique.   Parting words “You only learn from making mistakes, you can hear me make mistakes, but you’ll only really understand it when you make your own mistakes. So you can make mistakes as long as the size of the trade is right.” Raoul Pal Raoul is encouraging hedge fund investors to take calculated risks and not to be afraid to make mistakes. You’re going to lose money, but you’re going to learn from it.   You can check out Andrew’s books here 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 You can also check out Andrew’s online programs Valuation Master Class Women Building Wealth The Build Your Wealth Membership Group Become a Great Presenter and Increase Your Influence Transform Your Business with Dr. Deming’s 14 Points Connect with Raoul Pal LinkedIn Twitter Website Facebook Connect with Andrew Stotz astotz.com LinkedIn Facebook Instagram Twitter YouTube My Worst Investment Ever Podcast Further reading mentioned Raoul Pal (2014) The End Game     Upcoming on Real Vision is a two-week series of Gold vs Bullion, from 14 October Raoul will be interviewing: Jim Grant Dan Morehead John Hathaway Tom Kaplan Rick Rule During the two weeks Real Vision will be exploring the role of bitcoin and gold as alternative asset classes in a world of ailing monetary regimes and a seemingly unstoppable push toward negative interest rates. In this new world, how can investors preserve their wealth? Does gold remain on top as the ultimate safe haven asset or is bitcoin the new “digital gold”? Raoul will be covering these and plenty of other questions that investors tell us they want the answers to... Special offer For Worst Investment Ever followers, Raoul is also offering a three-month Real Vision subscription for only $1 (limited time only). Here is a link to the landing page  

David Barnett is a three-time best-selling author, consultant and business coach who has been working with small-business owners for more than 20 years. For the past 10 years, he has been helping people buy and sell businesses. David works directly with clients and produces online education products to teach aspects of small business purchase and sale transactions and local investing.   “(As one progresses in doing business) The deals keep getting bigger and we need these little ones to teach us not to make mistakes when we get into the big ones.” David Barnett     Support our sponsor   Today’s episode is sponsored by the Women Building Wealth membership group, the complete proven step-by-step course to guide women from novice to competent investor. To learn more, visit: WomenBuildingWealth.net.         Worst investment ever Background on value-added taxes in Canada David was approached by an entrepreneur he knew quite well who had run several businesses. The latter was building a new business. In Canada, they have a value-added tax called the HST. When a business buys goods it pays HST, when its sells goods or services, it collects the HST, and then business then sends the difference to the government. So when building a business, the founders have to lay out all kinds of money. All of the contractors and suppliers are charging new tax, but the founder has yet to make a sale. So a business pays paying out money in taxes, and it is not returning. Usually when a new businesses is founded it gets a check from the government because when it files a tax return, it has overpaid sales taxes versus what it has collected, and David had been through this many times. Deal done to pay partner’s advance and win off the government rebate In the first filing for a business, the business should get a check back from the government. After that, if it is doing well, it sends money to the government. David’s partner started to run short of cash in building the business because there were unexpected events and he had extra expenses. He offered to sell David and his investor group his HST return at a discount. So the idea was that the group would give the partner an advance and then, within three months, this money would come back to the group because the return would come in and the group would be paid. So the group proceeded. Once business was operating there was more to learn about tax liability David then started to learn more about how the government processes HST. It turned out that when the figure is high enough, the government do not blindly issue checks, it looks at the company more closely. So a few months went by and the government wanted the partner to submit some of those bigger invoices. So he did and when it found out the nature of his business, that there was a lot of cash involved, it required him to do anti-money laundering training, so the partner would become aware of current rules and laws. By this time, it was month five, and because there was so much cash in the business, he had to go through the training. So the group has gone from the business being built and all the money was going out to active operations. But the government withheld the money due to the business because it wanted him to send in more information. It wouldn’t release the funds because he had to do the money laundering training. Business had failed to send in payroll tax, which killed the investment’s chances Sadly, the business’ sales failed to come in as fast as was forecast, and another problem was that the partner had failed to send in source deductions – There were no income tax deducted from employee paychecks. By the time month six had come along, and the tax office was ready to return the HST, it didn’t, because it did some final checks and found that the business actually owed the tax office money. David loses faces with his investor group over loss of $25,000 David had not been entirely comfortable about doing the deal. So he had invited two friends to join him in the investor group. Now he had to face them and give them the news about all these problems that had been dragging on, and of course about the loss of the $25,000 they have put in. He admits he felt quite stupid in front of his friends and for the fact he got involved in the first place. He had failed to make himself fully cognizant of all the potential hazards that could have come about by doing this kind of thing. He was embarrassed and felt bad about inviting friends along with the deal. After two years though, they were all able to write off the loss as it had become an allowable business investment loss. So they were able to offset some other gains with it. But he feels embarrassed also that he had been a person who had written a book on how to successfully invest in small local businesses. It was a hard story to tell and one had not been ready to tell until on this occasion.   “There always has to be a clear path to a Plan B … some kind of security or collateral against something (your investment or deal) … even if it’s a guarantee from some person or entity or other business that you think would eventually have the ability to pay.” David Barnett   Some lessons Plan A: Make the most attractive thing possible, which is the repayment of your money If it doesn’t work for whatever reason (and because we’re dealing with humans, anything can happen, illness, marriage breakdowns, all those kinds of things)… have a Plan B. Plan B: Some other way to be made whole if something goes wrong with Plan A And follow your own counsel. In one of David’s books he tells how people can do local investing deals by learning how banks do them, which is, banks have a Plan B, they get collateral, they get security, they ensure that if something doesn’t work out, there’s a Plan B to follow. And that was one of the key critical things that David admits failing to have set up. Avoid hubris (excessive pride or self-confidence) and arrogance     Andrew’s takeaways Be very careful doing any business related to cash flows linked to government Government has extreme power and can literally do whatever it wants. It can cancel a deal, it can refuse to pay, it can demand more payments or fees. Dealing with anything linked to governments is messy, both in the West and in Asia. Make sure that you actually have rights to the value you are trying to claim or receive If you don’t have rights over the benefit you’re seeking, then you know, it’s very hard to win.     Actionable advice There always has to be a clear path to a Plan B That can be some kind of security or collateral against the deal you are doing, even if it’s a guarantee from some person or entity or other business that you think would eventually have the ability to pay.   No. 1 goal for next the 12 months David is focusing most on his everyday work with people who want to buy and sell small businesses. He has an online group-coaching program where there are people from all around the world (Asia, Australia, New Zealand, Canada and in the US). He works with them to help them prospect, find, locate, make offers, make deals, do the due diligence, on buying small- and medium-sized businesses. The group’s been going for about a year and a half and it continues to grow. It’s very exciting for David because you can spend a lot of time looking online for information about buying a business but every one of the deals is privately, so it’s very rare that you’re ever going to get somebody to tell you the exact details of what happened when they bought or sold a business because it’s all confidential.   “If you want to avoid all risks … you know, just stay home and don’t do anything and don’t go anywhere.” David Barnett   Parting words David says, If you want to avoid all risks just stay home and don’t do anything and don’t go anywhere. But he doesn’t think that’s what life is all about. He admits losing money in the deal, but he now sees it as a piece of the $25,000 that’s going to help save him from losing the piece of the $100,000 because as one progresses in doing business, the deals keep getting bigger and we need these little ones to teach us not to make mistakes when we get into the big ones.       You can also check out 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 Learn with Andrew Valuation Master Class - Take this course to advance your career and become a better investor Connect with David Barnett LinkedIn Email Website Connect with Andrew Stotz astotz.com LinkedIn Facebook Instagram Twitter YouTube My Worst Investment Ever Podcast Further reading mentioned David Barnett (2016) How to Sell my Own Business: A guide to selling your own business privately and not pay a broker’s commission David Barnett (2014) Invest Local: A Guide to Superior Investment Returns in Your Own Community  

Andrew and Chance would like to dedicate this podcast to peace “I stand for life against death; I stand for peace against war.” Pablo Picasso   Picasso’s Dove became a symbol for the Peace movement after it was used to illustrate the poster of the World Peace Congress in Paris in April 1949, part of the series of conferences held at the end of the Second World War (also in Wroclaw, Sheffied and Rome). At the 1950 World Peace Congress in Sheffield, Picasso made a brief speech recounting how his father had taught him to paint doves, which he concluded with the quote above. Photo: Tate Gallery, London, 2004   Guest profile  Chance Glenn is an innovator and entrepreneur who has been engaged in creative pursuits for the better part of his life. He holds a bachelor of science and a master of science degrees, and a PhD, all in electrical engineering, and has patents and publications in a host of focus areas. He is the president and founder of Morningbird Media Corporation, where he and his colleagues have developed and prepared for launch the Electronic Alchemy eForge, a 3D printer capable of producing functional electronic devices. His team has utilized support from NASA to take this from product from concept to commercialization. In addition to his technical pursuits, he is a tenured full professor, provost and vice-president of academic affairs at the University of Houston-Victoria (Texas), a practicing visual artist, and a Grammy-nominated singer/songwriter.     “I got involved with bitcoin ... early. And I’m talking about when it was a couple of hundred dollars.” Chance Glenn     Support our sponsor   Today’s episode is sponsored by the Women Building Wealth membership group, the complete proven step-by-step course to guide women from novice to competent investor. To learn more, visit: WomenBuildingWealth.net.       Worst investment ever Bitcoin foray holds investor’s attention on a daily basis Chance got involved with Bitcoin early, when it was valued at around US$100 a coin. It was one of his first investments when he bought his first batch of around five or six coins and he watched as they continued to grow. As he followed the progress of this new currency he felt he never knew where it was going to peak. He was too inexperienced to know how to tell when a downturn was about to hit, and he shared that if tracking something closely like this in the manner of a day trader, when it falls even a little, he felt panicky. Slight downturn is spooks so Chance retreats So he pulled all his money out when Bitcoin was at about $900 per coin. He had made about 10x the money he had invested at that point. After that, he would watch it rise to $14,000 per coin in the next nearly four years and he notes that now it is hovering around the $10,000 mark. The next time however he looked again it was well over $3,000, so he felt he had missed the boat and he probably could have made 100,000 if he had cashed out at the right time. Not so much a bad investment as a bad decision Aside from the loss, he pointed out that it was not the investment that was bad, but more like the decision was bad. The lesson he therefore takes away from the experience is to have the courage in future to sticking with something. Of course he raises the question of how long and how to you tell how long you must stick with something and then when do you jump out. Something good usually comes from failure He said however, “Here’s the good news!” What he did make he actually took and used as a seed investment for what became his current project, Electronic Alchemy and its eForge 3D printing device. So this mistake truly led to what he is starting to build now with his company, which is creating something genuinely revolutionary. He was able to use that money and do some of the preliminary work. But, he again revisits the pain, and says if he had stuck with it, he could have walked away with US$100,000 from Bitcoin investment.     “It wasn’t so much that the investment was bad. It was the decision that was bad. Chance Glenn     Lessons learned Having the courage to stick with an investment is important No risk, no gain. Chance learned how important is to be willing to take the risk and not just play it so safe. He thinks now that he was playing too safe and that this was a strategy issue. He was not risking too much, he had put in an amount that he could get away with losing, he hadn’t put his family in danger and there were no other such issues. But he says that if he had stayed with it, and was courageous enough, and had used some profit-taking strategy, he could have done a lot better. He was however the victim of panic when he saw it was correcting.     Andrew’s takeaways Have a plan So you know, if you have a plan it may have but not sure. Could it could have allowed you to say Nope, I’m sticking with this I’m not selling because I believe that Bitcoin is the future of da ba ba. And therefore, I’m going to stick with that plan. So one. And what we find oftentimes in the world of finance is very few people actually write out their plan. Just because it’s cheap, you don’t have to buy it. Andrew’s mother used to say that as they passed by a store and he saw something on sale and told his mother about it. The corollary to that is … Nobody went bust by selling too early So the idea behind that is, investors cannot always make the right calls. But it’s better to sell too early than to sell too late. Don’t buy high and sell low So many bad investment decisions are rooted in the fact that people have bought high and sold low. In Chance’s case, he actually sold high, perhaps he sold a little too early, but at least he sold high compared to his initial investment and didn’t make that common mistake.     Actionable advice Apply mathematics Chance says if he could have developed some analysis and modelling to look at the curve of Bitcoin to see whether it was going up or down, he should have done that instead of just looking at the numbers from minute to minute. Don’t be a prisoner of the moment Be someone who looks at the bigger picture, because the ups and downs of the moment can cause you to make the wrong decision. If you look at things with a broader perspective, have a plan and are willing and courageous enough to stick to it, you will do a lot better.     No. 1 goal for next the 12 months To launch the Electronic Alchemy eForge. To see what’s happening there, visit Electronicalchemy.com and sign in for news about our progress and how you might be involved. He calls on everyone to imagine having a device that can even 3D print a phone that works. He’s talking about being able to print the different layers of the phone from the bottom up, and the cool thing is, it doesn’t of course have to look like a phone. So that is he says where designers can create something special. Chance says his company at its core is about fostering and enabling such creativity through a community of people sharing ideas and printing them into realities.     Parting words Be courageous and be creative.     You can also check out 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 Learn with Andrew Valuation Master Class - Take this course to advance your career and become a better investor Connect with Chance Glenn LinkedIn Twitter Website Electronic Alchemy Email Connect with Andrew Stotz astotz.com LinkedIn Facebook Instagram Twitter YouTube My Worst Investment Ever Podcast Further reading mentioned Chance Glenn (2006) Jesus is Faithful MP3 album and CD  

Johnny FD (Fighter-Divemaster) grew up in San Francisco, in the US state of California, and quit his job at corporate giant Honeywell in 2007 to move to Thailand, travel the world and work as a professional scuba diver. While in the Kingdom, he started training and fighting professionally in Thai kickboxing. He has since written two books: 12 Weeks in Thailand: The Good Life on the Cheap and Life Changes Quick (both on Amazon), started multiple six-figure online businesses and since been has been interviewed and featured in Forbes, Business Insider, Fast Company, Entrepreneur, and the BBC.   “The reason why it’s such a bad idea to leave money in cash is you’re guaranteed to be losing at least 2% due to inflation. So even if your money is technically safe in a checking account or savings account, and you’re not gaining interest, you’re not losing money, you are losing, you know, whatever the rate is, which is usually around 2%.” Johnny FD     Support our sponsor   Today’s episode is sponsored by the Women Building Wealth membership group, the complete proven step-by-step course to guide women from novice to competent investor. To learn more, visit: WomenBuildingWealth.net.       Worst investment ever Johnny outlined a trio of mistakes Buying crypto and losing He named his most annoying investment ever was buying cryptocurrency and Bitcoin, and described the pain of seeing it crash. He still holds some Ripple because he simply hates selling it at a loss. He blames the Fear of Missing Out (FoMo) phenomenon for some of his exposure and relates the tale of buying in to Bitcoin when it was valued at US$18,000, just because of the FoMo effect amid the hype even against his gut feeling that it was not a good investment. Peer-to-peer lending ties up money Johnny also described getting into peer-to-peer lending via the Lending Club and finding out that it just tied his money up for five years. In that time, he just witnessed all the money he had disappear as loans defaulted one after another. He felt trapped and could not only not retrieve his money, but people were just flaking out on paying the funds back. He bemoaned the essentially and completely unsecured nature of the investment. Cash is not king in this context His number one of the trio though would be one big mistake he made that has recently been in the front of his mind – keeping money in cash or not investing it for the past few years. He did this based on the widespread idea that the market was due to go down “any day now” and that the world was due for another big crash. But, for the past two or three years, this crash is yet to happen, and he has lost the opportunity of all the potential gains he could have made on decent investments. He identified why it is a bad idea to leave money in cash is because you are guaranteed to be losing at least 2% due to inflation. “So even if your money is technically safe, in a checking account or savings account, and you’re not gaining interest, you’re not losing money, you are losing whatever the inflation rate is, which is usually around 2%.” Johnny FD Storing savings in cash means further losses The second part of loss in keeping money in cash is the forfeiture of potential gains, Johnny said. Even if the stock market fails to grow over a year, in the years he just kept cash, he was still missing out on dividends. They might have been another 1% or 2%. So right there, he explained, he was losing 2% on the inflation, 1% or 2% on the dividends that would have been paid out, which would have been either re-invested into your account, or cashed out on. Then there are the potential losses. On average, the stock market goes up by 7-8% a year, he pointed out. And he sat out on that, but also, in the past few years, the markets have gone up even more than that. So keeping a significant amount of money in cash was losing money, “almost like a bucket with a slow drip”. He said that it was almost to a point that he was holding on to a liability because the cash was not really an asset any more.     Some lessons On crypto Don’t fall for the FoMo Just don’t feel like you’re missing out on any wild gains because you’re not jumping in to something that looks really attractive. Slow and steady wins the race Instead, his strategy now is slow and steady wins the race. If he can grow his portfolio by 7% a year for the rest of his life, he will be very happy with that. On peer-to-peer lending For such investments, Johnny is still a fun, but he has learned. He still has quite a chunk of money in this class, but now he only gets involved if the loans are secured by real estate. If the people he lends to (invests in) don’t pay of the loans, he repossesses their house, sells it and get his money back. Alternatives are there if we look for them and learn There are always alternatives. Would-be investors just have to listen to podcasts, ask people, do the research to figure out how much return you’re going to get. Why give people money in an unsecured loan when you can give it as a secured loan backed by property. The only market timing that is proven to work is time in the market No one – no matter how smart they are or how much they think they can predict the future – can predict the market. So it is better just to be in the market.       Andrew’s takeaways On peer-to-peer lending Get collateral Make sure you are collateralizing anyone you lend to. Time in the market Allowing money to compound is critical People love to show the chart of the exponential rise in money in later years that comes after allowing your money to enjoy the fruits of compound interest. The sad news about such charts is that the compounding effect doesn’t really happen until 30 years later. Most people never start early enough to get to the 30 mark or stay in long enough to get the real impact of the compounding. Red light/green light Andrew has created an investment thinking tool thing called Red Light Green Light, which is just a very simple method based on the tools he has learned of how to look at a stock – his FVMR approach (fundamentals, valuation, momentum, risk) He says: Let’s take these four items, mix them together, and see what they can tell us. The only think he really wants to know is if the market is crazy high, he calls this Red Light, which means the market is too hot. And if it is flashing green, it is crazy low. It’s not a trading rule, it’s just an indication. If you’re someone who really gets stressed out about it, if you see it flash red, take the $800 (say you invest $1,000 a month) that you would normally put into equity and put it all into bonds. When you see it flash crazy green, maybe take the 200 that you would put in to bonds that particular month and put it into equity. This is a kind of a rules-based system that allows someone to control their emotions. And the fact of the matter is, it will only flash red or green, 10% of the time.   “Regardless, don’t worry about where the stock market is, as long as you’re contributing over the long term.” Andrew Stotz   Actionable advice “My only shopping is buying assets and no longer liabilities.”   No. 1 goal for next the 12 months His goal now is to stay on track – to keep doing what he’s doing – with everything. He says everybody should strive to work out in the beginning what their game plan is, then educate themselves to figure out what makes us happy, not just investing goals. He includes fitness and health, regularly growing income and keeping expenses low.   Parting words Learn from mistakes, don’t make your own and kick some butt.     You can also check out 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 Learn with Andrew Valuation Master Class - Take this course to advance your career and become a better investor Connect with Johnny FD Website 1 Website 2 Invest Like a Boss summit 2019 The Nomad Summit 2019 The Nomad Summit 2020 Email Connect with Andrew Stotz astotz.com LinkedIn Facebook Instagram Twitter YouTube My Worst Investment Ever Podcast Further reading mentioned Johnny FD (2013) 12 Weeks in Thailand: The Good Life on the Cheap Johnny FD (2014) Life Changes Quick: Replace your 9-5 income, travel the world, get in shape, and even fall in love  

Andrew Sherman is a partner in the corporate department of Seyfarth Shaw LLP, and serves as the corporate office chair for the Washington DC team. He focuses his practice on issues affecting business growth for companies at all stages, including developing strategies for licensing and leveraging intellectual property and technology assets, intellectual asset management and harvesting, and international corporate transactional and franchising matters. He has served as a legal and strategic advisor to dozens of Fortune 500 companies and hundreds of emerging growth companies. He has represented US and inter-national clients from early stage, rapidly growing start-ups, to closely held franchisors and middle-market companies, to multibillion-dollar international conglomerates. He also counsels on issues such as franchising, licensing, joint ventures, strategic alliances, capital formation, distribution channels, technology development, and mergers and acquisitions. Andrew has written nearly 30 books on the legal and strategic aspects of business growth, franchising, capital formation, and the leveraging of intellectual property, most of which can be found via his author page at Amazon. He also has published many articles on similar topics and is a frequent keynote speaker at business conferences, seminars, and webinars. He has appeared as a guest commentator on CNN, NPR, and CBS News Radio, among others, and has been interviewed on legal topics by The Wall Street Journal, USA Today, Forbes, US News & World Report, and other publications. Andrew serves as an adjunct professor in the MBA programs at the University of Maryland and Georgetown University law school and is a multiple recipient of the University of Maryland at College Park’s Allen J. Krowe Award for Teaching Excellence.   “Things happen when people sell their business, closely held companies, entrepreneurial companies – they run around and make a series of business decisions. Some of those decisions are actually diminutive of value or dilute of a value and accretive of value. But because you have chosen to surround yourself only with people that are like the Emperor’s village, and no one’s telling you, ‘Hey! This is a bad decision’ or ‘Hey! This decision could really affect the enterprise value if you were to go sell you are the Emperor’.” Andrew Sherman     Support our sponsor   Today’s episode is sponsored by the Women Building Wealth membership group, the complete proven step-by-step course to guide women from novice to competent investor. To learn more, visit: WomenBuildingWealth.net.     Worst investment ever This episode features a slightly different format  As Andrew Sherman has so much experience in the space of businesses, selling businesses and intellectual property and other types of property rights, our host thought it would be a great opportunity for his guest to go through some of the mistakes people have made in this arena that he has seen over the years. Enjoy! ‘Don’t call my baby ugly!’ or ‘DCMBU’ Andrew Sherman compares being in the park and seeing a mother with a baby in stroller and the social necessity of always having to say “Oh my God, what a beautiful baby”, with being the owner of a business and trying to sell it. Perhaps your “baby” is not attractive. Which doesn’t mean it may not be attractive in future or in the buyer’s arms but the first big mistake (1) a seller can make is to be overly defensive about their business. For many sellers, the business is their child, and they can have put more time into building that business than they have in raising their own family. Be ready for Spanish-inquisition-type scrutiny So if people are going to be selling their business, failing to be ready for the exposure and criticism that comes with putting their business up for sale is a huge mistake. He urges sellers to remember that due diligence in the post-Madoff, post-World Com era means that the depth and breadth of questioning the seller about all aspects the business for sale is extremely extensive. Andrew says it slows down transactions and makes them more expensive. Have checklists and humility about your ‘baby’s’ value Such scrutiny though can have a considerable psychological impact on sellers and the response can be defensiveness when people are questioning every business decision that they have made on every customer, channel, relationship, intellectual property action. He says: Be ready for this process. Have a data room, checklists and the right advisors, but also try to attain a mental state that admits not every buyer will think you have the most beautiful business in the world. “In fact, most buyers and buyers counsel and their advisors are trained and are paid to find the flaws in your business.” Andrew Sherman ENC syndrome Andrew spoke here about an issue similar to DMCBU, but one that is slightly different it speaks to leadership, governance and culture. ENC stands for The Emperor’s New Clothes, from the Hans Christian Andersen children’s story of the same name. He likens the Emperor’s tailors (who make the invisible suit) to consultants. The scariest part of the story is that no one in the village points out that the Emperor is not wearing anything until a child tugs on their father’s jacket coat and says loudly: “Daddy, why is the Emperor walking around with no clothes”. Business sellers need team members to be honest Things happen and people sell their business, closely held companies entrepreneurial companies, they run around and make a series of business decisions. Some of those decisions are actually diminish or dilute the company’s value, and do not create or add value. But some business owners because you have chosen to surround yourselves with yes men and no one’s telling them that a decision is bad and could affect their enterprise’s value, this is a big problem. Some owners only want to be told good news and good things about their business and how well everybody’s doing. This tendency will haunt a seller, because buyers, they’re lawyers, their accountants, their investment bankers, and their consultants are like the child, and they will state loudly something is a problem, Advisory boards can be a great form of due diligence Not only that, this it will go on to affect enterprise value and the price and the terms paid. One thing a lot of companies do not do is set up advisory boards to help prepare a seller, and play the part of the tugging on your jacket. When do you want to know you have a problem? When you’re in the middle of a sale process, which could be very embarrassing and derail the transaction? Or six months before the sale process, when you still have time to fix it? Andrew himself uses a process he calls mock due diligence. Like a dry run in which he plays the part of a nitpicking buyer, fault-finding wherever possible. If a seller is negligent, they can throw away a lifetime of effort If an entrepreneur who starts with nothing spends a lifetime builds their company and sells on day for US$100 million, that’s enough money for many generations to live on if it’s properly invested and protected. Andrew gets very sad when he sees people work their entire lives to build a business and then get a very disappointing result because of things that could have been avoided. So due diligence is very, very important.   “If during the mock due diligence process I can help find pockets of improvement and I can identify problems that I know a buyer’s counsel will identify, then we’re turning it from the worst investment ever into the best investment ever.” Andrew Sherman Build your business with the eyes of the buyer (EOTB) in mind Come in every day and say, “Is this business for sale? Could it be for sale? Why would somebody actually want to buy my business?” Numbers follow, they don’t lead In the context of mergers and acquisitions (M&A), Andrew says numbers don’t just happen, numbers happen as the result of attitudes, and the culture of leadership, of governance, of goal setting and of motivating people. Here Andrew talks about one of his recent books, The Crisis of Disengagement, which documents how high employee disengagement has become, in not only United States, but around the world. If someone was going to buy a company and they found the company’s level of disengagement among its workforce was at the norm, which right now is 51% if we’re talking about the US workforce, they would run away. Another 20% on top of the 51% is ranked “highly disengaged”. So that means seven out of 10 workers describe themselves as either disengaged or highly disengaged. A business owner can’t get much financial performance out of a workforce that is that disengaged to such degrees.   “Imagine how much more productivity, profitability, creativity, innovation, collaboration, teamwork you would get, if you could figure out a way to improve that national engagement average.” Andrew Sherman   Engagement is becoming a key due diligence question. Business buyers and sellers must be ready for it or they will be blindsided and it will sneak up on them like a bad pair of underpants. Disengagement defined It means that the worker or manager is not up at three in the morning tossing and turning about ways to innovate and improve her business’ products or services. If you are, it’s because you’re online looking for a new job. Andrew said the most disengaged workers never even leave their jobs, but merely stay in their cubicle and take paychecks from the owner while updating their Facebook accounts all day. They’re not doing any work. But they don’t want to leave because they fear they’ll be even more disengaged across the street. About 4% of the workforce are highly engaged. Twenty-five percent describe themselves as simply engaged. That’s where your delta is as a business owner, can you bring some of the 25% up to the 4% of high performers, without having them fall into the larger bucket of the 51%. One of the things that leaders of entrepreneurial and closely held companies need to do is really pay attention. At some point, there’s going to be onsite due diligence. And buyers are going to want to look at your culture and interact with your people. If what they see is people just shuffling their feet or taking 90-minute coffee breaks and other such things, they’re not just going to walk away, they’re going to run away. So pay attention to your disengagement levels. Pay attention to your company’s culture. If you really want the numbers to lead. Make sure that your culture, governance and leadership is in place. Negotiate until you’re done negotiating, then let go Negotiate all the way to the end, but once you have closed the deal, have no regrets. You can beat yourself up over an extra dollar you might have won, but it’s not worth it. If you’re that smart, start another company. And by the time you’ve hit 50 years old, you will have built a significant treasure chest. But… “This is really the important part, you’ve (also) empowered a lot of other people a lot more entrepreneurs today are not just interested in building wealth for themselves, but they want to build wealth for the people around them. And you know, that’s, that’s been a really refreshing evolution of this next generation of entrepreneurs coming up. Andrew Sherman   Andrew’s takeaways Getting ready to sell a business is not ALL about the numbers Andrews Sherman spoke a lot but not so much about numbers. When people go into thinking about selling their business, it’s usually all about the numbers. But Andrew was talking about emotional preparedness, a very important lesson. KPIs are no savior for management Followers of western style management often think that if they just measure everything about a person, they can get the most out of them. That is nonsense. If you took all the people out there who have created amazing things, and we tell them to measure every single thing they do, we destroy pride of workmanship in people. So I challenge listeners to think about that. To the buyer: “You gonna have to do better than that” The seller, just like the buyer, have every right to do our due diligence, work and into why the buyer is buying. The seller has every right to go to the buyer and asking to speak to peple in the company to understand more about it and what it is doing, and that way, with that small amount of work, you can figure out what they see in the company, and through that even if you don’t find out what they see in the company you are selling, you’ll have a better understanding of where they’re coming from.   Actionable advice 1. Build the right advisory team He’s not saying that just because he’s a mergers and acquisitions lawyer and that’s how he makes his living. He’s that because many times people – particularly sellers of entrepreneurial, closely-held or family-owned business sellers – get all the wrong advisors. They instruct a guy that did their estate plan or handled a piece of commercial litigation for them. They put the fate of their entire business and future generations’ wealth in the hands of an inexperienced person. Andrew says hopefully a seller will sell their business once. A lot of quantitative and qualitative wealth will come from this transaction, so a good team of transactional advisors should include: Lawyers accountants Valuation experts Good consultants These should be People who that really know what they’re doing, particularly if it’s going to be a cross-border transaction, which adds complications, both cultural and legal with which to the deal.   Walk a mile in the buyer’s shoes, ask what buyer really buying? The biggest mistake a company seller can make is to fail to understand what you’re selling. A seller may have a couple of patents that some patent lawyer a couple years ago said were not valuable to which the seller has never paid much attention. But perhaps because the seller never paid them much attention, they may be very important to the buyer. Andrew suggests thinking of the buyer as building this enterprise and that maybe the seller is the missing piece that will drive value. So the buyer comes along and offers US$10 million and the seller thinks: “Oh my God, so much money, I can live so comfortably with that.” “The truth is, to the buyer, you’re worth 100 or 200 million. Now, that doesn’t mean they’re ever going to tell you that. It doesn’t mean they’re ever going to pay that. But if you can figure out why is this company interested in me? What is it that they’re really truly buying?” Even if they won’t disclose it to you, which they rarely do, you can take the time to understand it.” Andrew Sherman 

Todd Tresidder is the author of seven personal finance books with an eighth coming out shortly. He created a course on strategic wealth planning and is the founder of FinancialMentor.com, a popular personal finance site. He is a self-made millionaire and was financially independent at age 35, which was more than two decades ago. Since then he’s been coaching clients on how to do the same giving him an unusual depth of experience. Todd has maintained his wealth by remaining an active investor and utilizing statistical and mathematical risk-management systems for investing. Through FinancialMentor.com he teaches advanced investing and advanced retirement planning principles. Take the next step beyond conventional financial advice and discover what works, what doesn’t, and why, based on years of proven experience.   “So he had all kinds of great stories about how this company was going to the moon and he didn’t understand the setback but this company was going to fly and I was a stupid kid and I bought it hook line and sinker and I put even more money into it. So I made this stupid mistake of averaging down on a loss you know chasing good money after bad and eventually went to zero, and I lost everything.” Todd Tresidder     Support our sponsor   Today’s episode is sponsored by the Women Building Wealth membership group, the complete proven step-by-step course to guide women from novice to competent investor. To learn more, visit: WomenBuildingWealth.net.       Worst investment ever Graduate joins HP, friend in credit department offers hot stock tip Todd made his first and worst investment when he fresh out of college. Holding a fine résumé for a new graduate, he had been the business manager for campus businesses. It was the mid-1990s and he had read the book In Search of Excellence, by Tom Peters. He went straight from college to work for HP, one of the top companies employers at the time, and had a friend in the credit department. One day during a lunch-time chat, his friend told him about a new company they were working with that was buying HP mainframes, and they were listed in the pink sheets on the Nasdaq. Todd’s friend had put his money in the company’s stock after doing financial analysis on the company and all this. ‘Inside scoop’ meant he put in all funds he had saved for his MBA course So Todd felt this was a “cool insider scoop” on this “amazing emerging company”. The company had an algorithm that was dominating how mail was going to be sent. Todd said “it sounds so absurd now, but it sounded cool at the time”. He had been busily saving for tuition fees to study for an MBA after paying his own way through school, and was still trying to pay off his college costs. He was also saving some money but chose instead to stick his savings into the pink sheet stock. Initially, it went up. But he neither knew anything about how new stock issues work or about how this business worked. So he also had no idea that it was standard protocol for new issues to promote them in an over-the-top way to get people excited about the stock, that it was “going to the moon”, in order to create demand. Todd was in early enough to see an initial rise in the stock, and he kept pumping more money into it. The more he had, the more he would invest, thinking this investment was going to pay for his further study. Stock price turned and broker talked him out of selling He then watched his investment fall to zero Then suddenly it turned and started going down. Magically, the stockbroker called Todd (as though he could read Todd’s mind) and “had all kinds of great stories about how this company was going to the moon. And that he didn’t understand this setback, but this company was going to fly and I was a stupid kid”. Todd bought the broker’s story and put more money in. He made “this stupid mistake” of averaging down on a loss, chasing good money after bad and eventually it went to zero, leaving him with nothing of his original investment. That was Todd’s first and worst investment ever. So for his very first investment I lost everything. But it did set him on a course to learn everything about how to stop it happening again.   “It was only in hindsight, as I started to learn (about finance and investing), that I realized the depth and the level of all the different mistakes I was making.” Todd Tresidder     Lessons learned Don’t buy on hot stock tips Don’t risk money you can’t afford to lose Don’t buy a story If you think about it, you are actually buying a business, so if you are going to buy based on any sort of fundamentals, it better be business fundamentals. You must must must have a risk management plan in place This must include an exit strategy Don’t play a game that you don’t fully understand. Todd was in the new-issue market, which is a very specialized game. There are rules by which that game is played by and he admits violating them all “with pure stupidity”, because he did not know the game. Don’t confuse brains with a bull market Which is he says is what many people are doing right now. Don’t ever buy based on news Don’t send good money after bad by averaging down Don’t let a win turn into a loss       Andrew’s takeaways Collated from the My Worst Investment Ever series, the six main categories of mistakes made by Andrew’s interviewees, starting from the most common, are: Failed to do their own research Failed to properly assess and manage risk Were driven by emotion or flawed thinking Misplaced trust Failed to monitor their investment Invested in a start-up company Andrew says Todd’s case features Mistake No.2 “Failed to properly assess and manage risk” When we get excited about the returns and the opportunity, we often ignore the risks Part of managing risk it to assess the risk of that particular company but the other part of it is managing all the other risks, and that is about the position, size, how much money you put into it, and things like that. Have some kind of exit strategy for every single investment you have The hardest thing for an analyst and for any investor is the decision of what to do when the stock goes down. When we talk about emotion in investing, the emotion involved when our stock is starting to fail is intense. Nobel Prize research highlights that the pain of loss is two-and-a-half times the excitement you feel when you’re winning. When that emotion is involved, that really is the time to have a risk management system in place. It could be a stop loss, or something else. You must learn the game before you play That’s a critical lesson.   “(Risk management) It’s the first consideration in investing. I always think in terms of what can I lose and only secondarily do I consider what can I win? My focus is entirely on controlling losses.” Todd Tresidder   Actionable advice Focus on risk management, first and foremost. The reason for that is you can make all the other mistakes, but if you have a risk management strategy, you can still win in the long term.   “If you don’t have risk management any one mistake can bury you.” Todd Tresidder     No. 1 goal for next the 12 months Todd is finishing off his wealth planning course at FinancialMentor.com and he has one final module to create to complete that project. Then is will be time to build all the sales funnels and all the systems to support the site.   Parting words “It’s really not painful to talk about your losers.” Todd said, no one is born a smart investor. As a matter of fact, we are hardwired in our DNA that opposes what we should be doing as a smart investor. That’s one of the reasons he uses quantitative disciplines to overcome the natural human emotions. Recalling mistakes and how they are made is just part of learning how to invest.       You can also check out 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 Learn with Andrew Valuation Master Class - Take this course to advance your career and become a better investor Connect with Todd Tresidder LinkedIn Twitter Website Full bio Course Books Connect with Andrew Stotz astotz.com LinkedIn Facebook Instagram Twitter YouTube My Worst Investment Ever Podcast Further reading mentioned Thomas (Tom) Peters and Robert Waterman (1982) In Search of Excellence: Lessons from America’s Best-Run Companies  

William Manzanares IV was born and raised in the Tacoma area of Washington State and is an active member of the Puyallup Tribe. He is a serial entrepreneur, having owned and operated successful smoke shops, convenience stores, and restaurants since 2005. William is passionate about helping small business owners as well as struggling readers. To that end he has written I Can’t Read: A Guide to Success Through Failure, telling the story about being unable to read as a youth and struggling with dyslexia, William hopes his new book will equip kids to improve their literacy and inspire them to pursue their dreams. He spends much of his time speaking with students about career planning and goal setting.   “I was excited. He offered high returns … and an equity stake in everything in the business. He talked a big game of how he was publicized everywhere and I said … ‘Okay, let’s do this’ … He did say after signing … checks that were written out in the contract, I’ll just pay you big chunk payments. So I got like a $5,000 payment, then a $10,000 payment … that took about six months to get those and then when a final payment bounced and I think he tried to write me another $15,000 check, it just didn’t go through. This was like six or seven months after I gave him the money and I went: ‘Oh, what did I do? (What have I done?)” William Manzanares   Support our sponsor   Today’s episode is sponsored by the Women Building Wealth membership group, the complete proven step-by-step course to guide women from novice to competent investor. To learn more, visit: WomenBuildingWealth.net.     Worst investment ever Meets publisher selling Super Bowl tickets Will met the publisher of a local weekly newspaper who was also the PR representative for his native American tribe in Tacoma because he said he could get all kinds of tickets and Will wanted to take his daughter to see the Seattle Seahawks American football team play in the Super Bowl for the second time in its history. The guy was always around talking about his connections and that he always knew someone who could get show tickets to anything. Will let his guard down. Will invests US$60,000 in regional newspaper The man then started talking to Will about signing up other cities for his newspaper business, that he had just signed up another city and that he needed some investment money to sign up more cities in the Pacific Northwest region. The amount required was US$60,000 so will loaned it to him and got a lawyer to draw up a contract for the deal. Will was excited as the publisher was offering an equity stake in the business, high returns and “he talked a big game of how he was publicized everywhere and I said … ‘Okay, let’s do this’ … He did say after signing … checks that were written out in the contract, I’ll just pay you big chunk payments. So I got like a $5,000 payment, then a $10,000 payment … that took about six months to get those and then when a final payment bounced and I think he tried to write me another $15,000 check, it just didn’t go through. This was like six or seven months after I gave him the money and I went: ‘Oh, what did I do? (What have I done?).” Sees state of the accounts, realizes his money is gone Will called the publisher, inherently wanting to be a nice guy, and the principal made excuses, said he was sick, blamed everyone else but himself, but in the end let polite and persistent Will into the company’s offices to consult and maybe try to save the company. Will then spent half an hour with the bookkeeper (while talking to Andrew he admits he should have done this a long time ago). After he saw the books he realized he was never going to regain his money. The principal owed printers and many other people. He also was the public relations guy for Will’s tribe, so he had been telling people including Will that the tribe owed him a lot of money, and the tribe has a multimillion-dollar casino, so people thought they had the revenue. Thinking ‘success the best revenge’, Will starts his own So will did what some entrepreneurs would do, and instead of getting mad, decided to get even by starting his own online publication called Grit City, after the nickname they have given Tacoma. What he discovered was publications in start-up phase do not make money, so essentially, he was funding this new venture and in so doing, was throwing good money after bad. His CFO also told him later about sunken-cost fallacy. He had already lost so much money with the other weekly paper owner and he was sinking money into the new publication. One day he decided he could not continue, and as a gift, handed the business to his partners, and walked away, another $60,000 out of pocket. While his former partners made the publication work, Will will never make any ROI from any of the decisions he made. One small satisfaction though is that soon after he left Grit City, it was outranking the publication of the con artist he had had dealings with originally.     Lessons learned Do due diligence, look at company’s books and debts If someone offers you an equity stake in a company, look at their debts, look at their books. If they are not willing to show you, then they’re not good partners and they are trying to take something from you. Beware of con men and the “confidence” they show The nature of con artists or confidence men is that they make you believe in the confidence that they have. Don’t look at what someone’s doing for you just because they’re doing it for you. Chances are their “kindness” and “confidence” is part of a mass scheme of deception.     Andrew’s takeaways Six common mistakes Collated from the My Worst Investment Ever series, the six main categories of mistakes made by Andrew’s interviewees, starting from the most common, are: Failed to do their own research Failed to properly assess and manage risk Were driven by emotion or flawed thinking Misplaced trust Failed to monitor their investment Invested in a start-up company Will’s case features Mistake No.5 A common mistake is that we give money to people or business start-ups. Then we neglect to ask questions such as: “How is progress?” “What are your revenues this month?” “What are your costs this month?” “Can I see the financial statements?”, Due diligence first is getting access to that but monitoring is about keeping track of exactly what’s going on. For a lot of people that are investing in a private business, the first step must be: Make sure that the company closes its books every month, Make sure the accountants produce a balance sheet and an income statement Even though it’s more time in trouble and hassle, make sure you get those financial statements that will ultimately will be signed by an auditor. Trust can only be built with time There is no short cut to building trust between people. Only time works with building trust. Sometimes we like people when we meet them, and we think we can trust them. So when you come upon someone that gives you confidence and they’re really excited, just remember the first three letters of the confidence – Con! That is what “con man: comes from. Spite is not a good investment strategy     Actionable advice Don’t believe when you go into an investment about the high returns, think about whether or not you can afford to lose the amount of money you are investing?     No. 1 goal for next the 12 months Will would like to see people who struggle with reading picking up a copy of his book then after that, picking up more books and learning.   “I’ve made a lot of mistakes in my life with my reading struggle and one was not admitting it to the public, to anyone for most of my life.” William Manzanares   Parting words It’s okay to take risk. Just make sure you’re not risking everything you have.       You can also check out 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 Learn with Andrew Valuation Master Class - Take this course to advance your career and become a better investor Connect with William Manzanares LinkedIn Twitter Podcast website Facebook YouTube Connect with Andrew Stotz astotz.com LinkedIn Facebook Instagram Twitter YouTube My Worst Investment Ever Podcast Further reading mentioned William Manzanares (2019) I Can’t Read: A Guide to Success Through Failure  

Shawn Walchef is a restaurant owner, digital entrepreneur and a proud father. Since 2008, Shawn has owned Cali Comfort BBQ in San Diego County. In order to survive, Shawn knew early on to operate his family restaurant and sports bar like a tech company. Now whether it’s his annual #BETonBBQ “Turf and Surf” tasting event in August or his expanding catering empire in San Diego, Shawn’s many business ventures all incorporate technology, especially the kind you use everyday on your cell phone. That’s how he discovered podcasting. Since Shawn first started a business and BBQ-themed podcast almost three years ago, he’s watched podcasting grow, with many shows popping up that he’s helped inspire. Shawn has played a big part in getting so many fellow BBQ business owners into podcasting. Listen today to his Behind the Smoke: BBQ War Stories podcast where he guides viewers and listeners through the ever-evolving world of digital marketing and this helps his fellow restaurant and business owners adapt and succeed. Shawn will begin releasing weekly audio and video episodes in the fall of his new Digital Hospitality podcast. On the show, he and his guests will get personal and truthful about what it takes to truly thrive in business, sharing advice on social media, blogs, and digital tips and tricks. The show will also explore topics that aren’t usually discussed on a business podcast like health and wellness. To find episodes, educational blogs, and behind the scenes content online at CaliBBQ.Media. “Basically, he wanted me out and he wasn’t going to pay me back. He wasn’t gonna pay me back the money, and he was going to keep the liquor licence. And you know, at that point, I had never been spoken to like that in my life. I had trusted him. My business partner, Corey, my best friend at the time, we had trusted him, we had put all of our hopes and our dreams into this restaurant business. But we did it in a way that we had no control.” Shawn Walchef   Support our sponsor   Today’s episode is sponsored by the Women Building Wealth membership group, the complete proven step-by-step course to guide women from novice to competent investor. To learn more, visit: WomenBuildingWealth.net.     Worst investment ever Grandfather trusts him to run real estate business Shawn never knew his father, but learned a great deal from his medical doctor grandfather, who raised Shawn with of course the help of his grandmother and mother. From a very early age, his he taught Shawn that hard work is good, but that hard work and education would get you ahead in life. Shawn grandfather also sent him to university in Colorado and Alicante in Spain. During his time abroad, his grandfather asked him to return to San Diego as he had been made the trustee for grandpa’s estate as Shawn was the only person he trusted. After his grandpa retired as a medical doctor, he had started investing in real estate. So he needed help with his real estate business so Shawn transferred to the University of San Diego. This allowed him to spend time with his grandfather, to help him write his memoir, and to just be there to learn from him, about his life and business. Attempts to enter law schools fail Shawn thought he was going to be an attorney, so he took the L-sat, studied very hard, and applied to law school. He was rejected by all three of San Diego’s law schools, which hurt a great deal. Then his best friend who was with him in Spain moved to San Diego and Shawn suggested Corey help Shawn manage his grandfather’s real estate, which they did around 2006. Early on invested eatery with liquor license Grandpa had purchased a property in East County, San Diego that had an existing restaurant, which had a liquor license, a type-47 liquor license, which allows you to sell beer, wine, spirits at an existing restaurant space. The license is very valuable in the San Diego market. They thought, if someone wants to open a bar, or restaurant, anywhere, the profit is in the liquor, which was a very attractive proposition for the two budding business partners. They decided to purchase the license for their grandfather. So at the time was valued at US$75,000, but they bought it for $50,000. They also raised another $50,000 so that they get into the restaurant that was being operated by a man named Howard. He had been operating a breakfast restaurant and Shawn and he had become friends. Howard was looking to expand his business so the boys said they would add the liquor license and help by including a dinner service and turn it into a sports bar. Boys take 49% share in restaurant with ‘Howard’ The deal was this: Howard would run the restaurant and he would have majority interest, a 51% ownership stake in the company. Shawn and Corey had 49%. Young and naïve, and not knowing Howard nearly as well as they should, the boys started working, making capital improvements to the business, adding flat screen TVs, adding products so that they could create a dinner menu, and adding staff. Howard goes on rant about spoiled brats and hard work But Howard didn’t like many of their actions, and one day after the boys had been installing some TVs, Howard blasted Shawn in front of customers, staff members and Corey. He accused Shawn of being lazy, being inexperienced and spoiled. He regretted bringing in the liquor license and the partners, said he wasn’t going to pay him back the money invested and that he was at the same time going to keep the liquor license. Shawn had never been spoken to like this and he and Corey had trusted the guy, and had put all their hopes into the restaurant business. But they had done it in a way that they had no control. While they did it with the best of intentions, ultimately they were at the mercy of Howard, who held the majority stake. Shawn turned bad to good, ends up recovery all Even though this was the worst investment in his life, he turned everything, including an abusive voicemail, to his benefit. He kept the voicemail, played it, added it to his iPod and used it as his workout mixtape. For Shawn, it became just motivation. Fortunately, Shawn filed a lawsuit against Howard to recover only the money he and Corey had invested but he was able to recovery everything, including the money and the license. After a year or so, Howard failed in the location and Corey and Shawn took over that location, which then became Cali Comfort Barbeque, which was the start of the businesses they are running now. The voicemail that Howard left became the intro to the first 30 podcasts episodes of Behind the Smoke. Shawn says if you’re going to be in the business, if you’re going to invest in things, you have to understand that there’s the human element, and there’s a human element that you can’t control. All you can do is do your best and you need to put yourself in a position where you can control the narrative. “So my workout mixtape was this man screaming at me telling me that all I’d never worked a day in my life and that I’m worth nothing.” Shawn Walchef   Lessons learned Make sure you get majority control if you really want to run a business If you really want to play a part in a business, and it’s a business or investment you truly are interested in, get executive control. Make sure you and you alone or you and a trusted partner are the running the business. Never put yourself in a position of being without a majority stake and without control. I understand a lot of times, you have to raise capital and do things, so that you could get any business open. When you don’t have control, you don’t have creative flexibility. Adapt to survive, pivot to thrive If you don’t or are unwilling to change (in your business dealings or investments) it will be very difficult to operate any business, especially restaurants or bars. In hospitality, invest in making memorable experiences Restaurants are risky investments but food of course is a necessity. Every village needs the local pub, every village needs the local eatery. It doesn’t matter where you are in the world, there’s a place that you love, that your family loves, that when it’s your birthday, your grandmother’s birthday, that’s where she wants to go, you have a special table, somebody makes you feel a way that’s memorable. “If you’re going to invest in a restaurant, invest in the jockey, don’t invest in the horse. The jockey is the person that’s really the visionary behind it, the person that’s going to no matter if they get knocked down 20 times they’re going to get up 25 times.” Good hospitality partners will always ask: “How do I improve this business?” “How do I make this business work?” “How do I shift?” “How do I do something?” “How do I do online delivery now that that’s important?” “How do I keep my staff engaged so that they take care of the village and that people are excited and they want to come back?”     “If you’re going to be in the business, if you’re going to invest in things, you have to understand that there’s the human element, and there’s a human element that you can’t control. All you can do is do your best and you need to put yourself in a position where you can control the narrative.” Shawn Walchef     Andrew’s takeaways Collated from the My Worst Investment Ever series, the six main categories of mistakes made by Andrew’s interviewees, starting from the most common, are: Failed to do their own research Failed to properly assess and manage risk Were driven by emotion or flawed thinking Misplaced trust Failed to monitor their investment Invested in a start-up company Andrew says Shawn’s case features most common mistake No.2 “Failed to properly assess and manage risk” When we get excited about the returns and the opportunity, we often ignore the risks. Now Shawn having experienced what is truly at stake understands the risks a lot better now. And Mistake No. 4: Misplaced trust Whenever we go into business, we usually have to do it with other people. We must ideally want to find people that we trust. The most important thing Andrew has learned about trust is there is no shortcut to building it. Ultimately, trust takes time. Remember, it’s actually a bit of a dilemma because looking at a business idea, entrepreneurs want to jump in, and often need to act quickly also, but you can’t act rashly. By the same token you also can’t wait too long. But never forget that ultimately, you’re trusting the people around you to you know, to work with you, to get where you’re going. Great idea to use failure and rejection as motivation Success can be motivating, but being told you can’t do something or you get rejected, it can really put a fire in your soul. If you don’t iterate, you die eventually A good entrepreneur knows that changing, pivoting or iterating must be almost constant in the quest to discover what really works in a business, and most importantly, what works for your customers. If you don’t iterate, you die eventually.   Actionable advice “If it’s an investment that you are personally going to be involved in, from a business standpoint, from an operational standpoint, from a visionary standpoint, make sure that if you care about it, and love it and want it to succeed, that you have the majority, controlling interest and be ready to devote your life to it.”   No. 1 goal for next the 12 months His number one goal is to get his family moved into their new home Next is getting the Digital Hospitality podcast launched on a weekly basis Then he wasn to launch is book in which he’s going to talk about all the secrets, missteps, the Howards, the failures, the lawsuits, the litigation, the funding, all the things he and his business partner had to do to keep their doors open in hopes that some other restaurant owner can read, gain some insight, and hopefully avoid the mistakes that Shawn and Corey made.   Parting words Stay curious and get involved.     You can also check out 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 Connect with Shawn Walchef LinkedIn Podcast Twitter – Cali Comfort Twitter – Cali BBQ Instagram – Cali Comfort BBQ Instagram – Cali BBQ Website – Cali Comfort BBQ Website – #BETonBBQ Website – Media Facebook Email Connect with Andrew Stotz astotz.com LinkedIn Facebook Instagram Twitter YouTube My Worst Investment Ever Podcast Further reading mentioned

Ted Seides, CFA, is the son of a teacher and a psychiatrist. Perhaps by genetic disposition, he is passionate about sharing his insights and investing in people. He is the chief investment officer of Perch Bay Group, a single-family office he joined in 2017 to manage a diversified portfolio of direct and fund investments across asset classes. Ted produces and hosts the Capital Allocators Podcast, which by the by the end of 2018 had reached one million downloads. From 2002 to 2015, Ted was a founder of Protégé Partners and served as president and co-chief investment officer. Protégé was a leading multibillion-dollar alternative investment firm that invested in and seeded small hedge funds. Ted built the firm’s investment process and managed the sourcing, research, and due diligence of its portfolios. In 2010, Larry Kochard and Cathleen Ritterheiser profiled Ted in Top Hedge Fund Investors: Stories, Strategies, and Advice. Sharing the lessons from his experience, Ted authored So You Want to Start a Hedge Fund: Lessons for Managers and Allocators in February 2016. He began his career in 1992 under the guidance of David Swensen at the Yale University Investments Office. During his five years at Yale, Ted focused on external public equity managers and internal fixed-income portfolio management. Following business school, he spent two years investing directly at private equity firms, Stonebridge Partners and J.H. Whitney & Company. With aspirations to demonstrate the salutary benefits of hedge funds on institutional portfolios to a broad audience, Ted made a non-profitable wager with Warren Buffett that pitted the 10-year performance of the S&P 500 against a selection of five hedge fund of funds from 2008-2017. Ted is a columnist for Institutional Investor, wrote a blog for the CFA Institute’s Enterprising Investor, and wrote guest publications for the late Peter L. Bernstein’s Economics and Portfolio Strategy newsletter. He is also a trustee and member of the investment committee at the Wenner-Gren Foundation, an active participant in the Hero’s Journey Foundation, and is a decade rider with Cycle for Survival. He previously served as a trustee and head of the programming committee for the Greenwich Roundtable and as a board member of Citizen Schools-New York. Ted holds a BA in economics and political science, Cum Laude, from Yale University and an MBA from Harvard Business School.   “It was one of those examples that the market can stay rational longer than you can stay solvent, and that really anything can happen. There was nothing about the fundamentals of these assets that would have told you that this could have happened.” Ted Seides   Support our sponsor   Today’s episode is sponsored by the Women Building Wealth membership group, the complete proven step-by-step course to guide women from novice to competent investor. To learn more, visit: WomenBuildingWealth.net.     Worst investment ever Ted chose one of his worst investments ever based on its outcome. In 2002, during his early years at Protégé Partners around the launch of that fund, one of the core investments they were making was in a multi-manager hedge fund portfolio. Within that portfolio, one of the core investments was in a relative-value arbitrage hedge fund called Parkcentral Global Hub. Principled fund group included Perot family It was a group that had spun out of or was included in the family office of the late Ross Perot. And the group had been managing its strategy for a long time very successfully in a kind of value-oriented, relative-value manner with a very long time horizon. There was a tremendous amount of co-investment (a minority investment made directly into an operating company alongside a financial sponsor or other private equity investor, in a leveraged buyout, recapitalization or growth capital transaction). Perot had put around US$500 million into the fund and there were highly skilled people running it. Seides said it was a rare case of an investment management organization run with great business principles. Fund launches in 2002 and grows to nearly 3bn in assets The fund launched to outside investors in July 2002, growing to US$2-3 billion in assets until they closed it to new investors. It continued to progress well under the goal of making 10%-12% a year with relatively low volatility. And they had done that historically. They found new structures and strategies, were very insightful and had good communcations enabling investors to know exactly what was going on. Few blips in Spring 2008 but nothing major But, heading into Spring 2008 the situation became shaky for them. A few things went wrong, but they were within the bounds of their understanding of risk and in the summer and into the fall, they would come by the office and said their largest position was a relative-value trade in the commercial mortgage-backed space. Out of the 2008 crisis, most people remember that subprime residential mortgages blew sky high. But in the commercial mortgage space, if considering the fundamentals, there were apparently few problems in the economy. Serious concerns aroused after fund loses 13% by September’s end But strange things were happening in the capital markets because of the turmoil, especially in September. The fund survived the Lehman bankruptcy in October, but going into November, they had a particular trade where they were going long in some senior debt – commercial mortgage-backed securities. The senior debt was priced as if something like 40% of the underlying commercial real estate would have to default with no recovery at all. And all because of the turmoil that was happening in the markets. It was so bad that the fund managers said it no longer made sense to continue to hedge with the junior debt because it had gone down so much that it was not really hedging anything, so they let all the clients know what was happening. By the end of the month, Parkcentral Global Hub had lost 13% of its value, in part because of commercial mortgage-backed securities, an affidavit from the Bermuda liquidators now says. October takes another 26% out, reducing net-asset value to under US$1.5bn In October, the fund lost an additional 26% of its value, reducing the fund’s net assets to just under $1.5 billion. November darker As November rolled in, the situation got worse. Losses continued early in the month and accelerated beginning in November 12, as the bottom fell out of the commercial mortgage-backed securities market. In just one day, November 18, the fund lost $300 million. In that deadly six days in November, his office in New York was saying that they kept putting money into the trade, backing the collateral, but it kept getting worse. For one day that those prices moved, Ted remembered, it was around 1,700 basis points over treasuries. That was the equivalent of something 60% of all of the commercial real estate that underpinned these assets had to go bankrupt with no recovery. Fund’s net asset value goes to less than zero On that great day of loss, all the money in the fund was gone, in fact, more than all the money in the fund. The fund net-asset value (NAV) went to zero. They could have described it as poor risk management, you could have described it as being involved in the drive by shooting. So what what happened, though, was that most of the principals in the organization had all of the their money invested alongside the client and lost all of it. Perot lost maybe $500 million, maybe it was more. But he did decide against putting billions back in the trade to get to the other end, which was the implicit reason why they would be able to withstand turmoil. Events were around the time Madoff was exposed This was all around the same time or a little bit before news about Bernie Madoff emerged. But at least today most of the investors have probably gotten most of their money back with all of this recovery from Irving Picard. But for Ted and his team, they only held a 2%-3% position in the portfolio, and therefore could withstand the hammering. But it was one of those examples that the market can stay rational longer than you can stay solvent. And that really anything can happen. There was nothing about the fundamentals of these assets that would have told you this could have happened, Ted says. “You could have described it as poor risk management, you could have described it as being involved in the drive by shooting … what happened, though, was most of the principals in that organizsation had all of the their money invested alongside the client and lost all of it. Ross (Perot and his family) lost … maybe … $500 million, maybe more.” Ted Seides Some lessons Anything can happen In something you underwrite, in this case an investment management organization that was a great organization that had done everything the right way except for one thing – which was they had leverage and they failed to manage risk in the worst possible moment to be able to withstand the “hundred-year flood” that hit Be very wary of any investment that is leveraged Such a situation can easily lead you to losing control of your wealth and future. Ted talked about how markets can stay rational longer than an investor can stay solvent. He said that not only is this true, but all investors are not immune to this happening. If using leverage in your strategy, you absolutely must understand how you’re going to survive a big storm   Andrew’s takeaways The key lesson is the issue about leverage Overconfidence can creep in and lead to dangerous decision But it’s very human and happens all the time. In the investment field, analysts, researchers and allocators are paid for strong opinions and to “putting their money where their mouth is” and convey belief in their opinion. That can lead to overconfidence, which can creep in despite being years of discipline and one day the self-belief overreaches and the money injected is excessive. It’s then that big losses occur. Diversification was key for Ted While the lack of it wiped out the fund he was investing in, it didn’t wipe out Ted because he had used the diversification technique of sizing his position. Two main risks an analyst should look out for when analyzing companies Leverage Forex If a company has no debt, and no foreign exchange exposure, a huge amount of potential risk is eliminated.     Actionable advice All investors should get a lot more creative on how much worse it could get than the worst-case possible outcome, because again: “Anything can happen.”   No. 1 goal for next the 12 months To figure out how the work he has done on his own podcast can best benefit an investment organization.     Parting words “Andrew, keep this up. It’s a lot of fun and it’s a terrific way of trying to tease out lessons.”   You can also check out 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 Learn with Andrew Valuation Master Class - Take this course to advance your career and become a better investor Connect with Ted Seides LinkedIn Twitter Website Podcast Connect with Andrew Stotz astotz.com LinkedIn Facebook Instagram Twitter YouTube My Worst Investment Ever Podcast   Further reading mentioned Larry Kochard and Cathleen Ritterheiser (2010) Top Hedge Fund Investors: Stories, Strategies, and Advice Ted Seides (2016) So You Want to Start a Hedge Fund: Lessons for Managers and Allocators Ted Seides (2006)