My Worst Investment Ever Podcast

Eric Choe started his investment industry career as a sell-side equity analyst in Korea, where he worked with Samsung Securities, ABN AMRO, and Deutsche Bank. After earning his MBA at The University of Chicago Booth School of Business, he worked at Fidelity Investments where he ran the Fidelity Thailand Fund. Currently, Eric manages multi-asset portfolios for high-net-worth individuals at a private bank based in Singapore.   “We must have an investment checklist … every investor has different factors they look for when they make investments and watch their investments. And I think everyone has to have a different checklist for what they’re comfortable with … (which) can evolve over time.” - Eric Choe One lesson learned One item on Eric’s 10-point checklist: If a stock is trading at a price-to-earnings growth ratio (PEG ratio) of above one, don’t invest in it. (The PEG is a stock’s price-to-earnings [P/E] ratio divided by the earnings per share (EPS) growth for a specified time period). Now if he’s invested in a stock in which the PEG goes above 1.0, he sells it, and if it’s trading at about 1.0, he will not buy it. Andrew’s takeaways Avoid investing in a company that is competing against the government. However, one exception would be when the government is truly failing in its strategy. The entry of the government into an industry isn’t the end of the world. But it can really affect the multiple of your target company and can lower the price that people are willing to pay for stock as their assessment of future growth will have fallen. Companies can survive, adjust and thrive, but their valuation will slide a little. 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 Eric Choe LinkedIn Connect with Andrew Stotz astotz.com  LinkedIn  Facebook  Instagram  Twitter  YouTube  My Worst Investment Ever Podcast 

Azran Osman Rani is currently the founding CEO of Naluri a digital health technology company that provides a cost-effective and accessible digital health psychology service to help users adopt healthier lifestyle behavior changes. He is active in the internet technology space is a co-founder investor and advisor to iFlix, MoneyMatch, Cognifyx, and YellowPorter. He was previously the CEO and group COO of iFlix – a disruptive Internet TV-and-video-on-demand service that was launched in Kuala Lumpur, Malaysia in May 2015. It now operates across more than 30 markets in Asia, the Middle East, and Africa and has 700 employees, all in less than three years from its launch. Previously, Azran pioneered the long-haul, low-cost-airline model as the founding CEO of Air Asia X. He led the airline’s growth from start-up to US$1 billion in revenue, 2,500 employees, and a public listing, all in just six years, breaking many low-cost airline industry conventions and introducing innovations along the way.   “I ended up with a seven-digit net-cash loss … and eventually had to part company with the board on that journey. So it was a very, very tough and painful, financial ending … But you know, I learned an invaluable amount from that experience, and I wouldn’t have traded it for anything else.” – Azran Osman-Rani Lesson learned Be very wary of what banks or investment bankers tell you or advise you to do. They are getting paid their fees and commissions even if your business suffers. Have a back-up plan. Every organization or individual should have a back-up plan or alternative way to survive or cover from loss. Andrew’s takeaway The damage of leverage. There are really only two financial risks: debt and currency. If a business is run without debt, a huge amount of risk is reduced. In business and in life, the damage of leverage can never be understated. Obey the principle of trying to remain debt-free and the principle of diversification. Never listen to financial people. Investment bankers and analysts and other players in finance usually never run a company. They sit on the sidelines doing research and giving advice, without risking anything, without having any “skin in the game”. In fact, they are making money from getting a business owner to follow their advice, which is quite distracting. Finance adds no value. This is something Andrew tells his finance students. Value is created through products and services. Value is created on the asset side of the balance sheet, where the assets of the business and the brains and the commitment and determination of the people go into creating better products and services. This is what creates value. The job of a CFO of a company is to use finance as a tool to support management decisions. Remember this, a CEO or a young CEO, who is out there trying to build their business should not get lulled into thinking that financial maneuvers are going to create long-term value. 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 Azran Osman-Rani: LinkedIn Twitter Azran Osman Rani Instagram Connect with Andrew Stotz  astotz.com LinkedIn Facebook Instagram Twitter YouTube My Worst Investment Ever Podcast 

Md. Nafeez Al Tarik is head of research and investment at City Brokerage Limited in Bangladesh. He has eight years of research and investment experience in the equity markets of Bangladesh and provides his research to foreign and local institutions. Prior to working at City Brokerage, he served as the chief investment officer at Asia Tiger Capital Partners Asset Management Limited, where he was responsible for several mutual funds valued at around US$12 million. In 2015 and 2016, his flagship fund generated cumulative performance, with respect to the benchmark, of about 8%. He also had experience and expertise in asset-liability management, having worked for the treasury department of Eastern Bank Limited and as an assistant vice president in Royal Bengal Investment Management Company Limited. Nafeez holds an MBA and a bachelor’s degree from the University of Dhaka, from the department of finance within the faculty of business studies. He’s also a CFA charter holder and a certified Financial Risk Manager (FRM). In his spare time, he’s an entrepreneur running the financial coaching institute, Professional Finance Studies, where he provides training in the fields of financial modeling, equity evaluation, risk management, advanced excel skills, and CFA and FRM preparation. He also has been a guest lecturer at the finance department of Jahangirnagar University, where he’s taught financial engineering and advanced financial engineering courses in the BBA and MBA programs. Finally, he’s also a CFA Society Bangladesh volunteer.   “I should have trusted the market and should have done some more due diligence to understand why the stock was falling with such large volume … I probably would have found that the asset quality was very poor compared to what I had thought, and from there I could have cut my position and taken a stop loss.” Md. Nafeez Al Tarik   Lessons learned There are many value traps in the market so don’t fall for them. Most of the time, the price is right. You have to look at the price action and you have to go deeper than the mere appearance of the market, as price could be pointing to an internal problem. Particular due diligence is required when you are investing in banks. Look carefully at the board, governance, management, accounting policies, risk management policies, loan rights policies, and provisional policies. Listen to your peer analysts and fund managers, especially those who are taking the same kind of contrarian angle as you and pay attention to their hypotheses. Understand that you are a human being and we have a lot of biases. Pay attention to your behavioral biases. In Nafeez’s case, he had confirmation, conservatism, overconfidence, and status quo biases. Talk to management to get a feel for where they are coming from. Find out about them, what their incentives are, if they have any conflicts of interest, and, especially when your position is big, do extra due diligence. Asset allocation involves some key decisions. Think and research thoroughly so you can make appropriate asset allocation decisions. To do that effectively, the macro environment must be understood. Andrew’s takeaways Properly analyze and manage risk. Some of the ways to do that are looking carefully at asset quality, putting in place some kind of stop-loss, and carefully sizing the position you take in an investment. So if you like a stock, the decision as to how big a stake you will take in it for your portfolio is one that needs careful research and consideration. On banking, if asset quality drops, you can be wiped out as banks operate on low multiples. If the assets, meaning the loans that a bank has awarded, deteriorate just a little, say 10% of total assets, all loans at the bank can go bad, which can literally wipe out all the equity of the bank. Even in a bubble time, the multiples of banks will be lower than the multiples of the overall market. A great investment can go very wrong because of the macro environment. An investor must never dismiss the macro environment. The Price is Right. When Andrew was growing up, he remembers watching a TV game show called The Price Is Right. In the stock market, there are many people looking at the market, which affects what the price is. But there’s a paradox, the price is right, but in order to be a successful active fund manager, at some point you have to bet that the price is wrong. When you make that bet, you really must have a great amount of high-level research in support of that decision. Connect with Md. Nafeez Al Tarik LinkedIn Bloomberg Twitter Andrew’s books How to Start Building Your Wealth Investing in the Stock Market My Worst Investment Ever 9 Valuation Mistakes and How to Avoid Them Transform Your Business with Dr.Deming’s 14 Points Andrew’s online programs Valuation Master Class 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 Andrew Stotz: astotz.com LinkedIn Facebook Instagram Twitter YouTube My Worst Investment Ever Podcast  

Beth Azor is a 33-year veteran of the commercial real estate industry and owns Azor Advisory Services, which specializes in consulting services in training, sales, leadership, coaching, acquisition, due diligence, and market analysis. Beth owns and manages a US$79 million portfolio of commercial retail properties in southeast Florida and recently wrote and published a book called Don’t Say No For The Prospect, a collection of stories from her career, and her career as a retail leasing rock star. She is also a frequent guest on business and commercial real estate podcasts has her own Retail Leasing for Rockstars podcast and hosts the Rockstar Book Club Monthly Call, where she and guests review nonfiction, business-related books. A graduate of Florida State University (FSU), she is also chair emeritus and founder of the FSU Real Estate Foundation.   “Timing is the key and I would rather go for it and make mistakes, and even lose money than to never go for it ever.” – Beth Azor Lessons learned Timing is everything, but arrogance can the cause of failing to act in a timely fashion. Beth waited too long and rejected another, a cheaper offer that could have saved her in the long run through the 2008 real estate crash in the US. Pay very close attention to due diligence. In this case, it was due diligence about the location of her property and its demographics. Beth failed to appreciate the negatives about the location, which was surrounded on three sides by unpopulated areas. Andrew’s takeaways 1. Never underestimate the quagmire that bankruptcy swamp you in. Whether it is you as a company or you as a person, bankruptcy courts can change things suddenly and for the worse. At the bang of a gavel, a judge can make a judgment on bankruptcy that you really can go against an investor. 2. Arrogance and overconfidence is among the most prevalent of the mistakes investors make.                a. Macro factors are a major thing investors should always think about when investing. Sometimes it’s about preparing for events, such as the 1997 financial crisis in Asia, or the 2008 global financial crisis, which in a way started in Beth’s world with real estate. 3. Andrew recommends people follow his six-step investment process.               a. Find an idea               b. Research the return               c. Assess the risks               d. Create a plan               e. Execute the plan               f. Monitor the progress All those suggestions apply, whether it is a land investment or a stock investment. The key item for Andrew is that he separates the research on return from the research on risk. “Everybody who’s getting ready to make an investment needs a devil’s advocate … (who) must be focused on what can go wrong, and why it will go wrong, and what will be the impact when it does go wrong.” – Andrew Stotz   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 Beth Azor  Beth Azor  Twitter LinkedIn  Connect with Andrew Stotz astotz.com LinkedIn Facebook Instagram Twitter YouTube My Worst Investment Ever Podcast

Jeyabalan Parasingam is a Certified Public Accountant (MICPA) and a Chartered Financial Analyst (CFA). He has more than 25 years of corporate experience in areas such as finance, taxation, auditing, investment banking, private equity, real estate, and investment management. He’s been instrumental in the set-up of several successful start-ups over the past 15 years with a range of companies involving BPO (business process outsourcing), private equity, real estate, and technology. He has raised more than 600 million US dollars in equity commitments over the past 10 years.    “One of the best lessons I’ve learned in stock investment is that there is no amount of under-investment that you can do in due diligence. You’ve got to start due diligence in advance by reaching to the internal stakeholders.” – Jeyabalan Parasingam   Lessons learned  1.Detailed take on vital nature of due diligence behind any stock investment. Start vigorous due diligence a long time in advance. What he means is:                       a. Speak to the competition                       b. Speak to bankers                       c. Pick up the phone and call a supplier or get someone else who you trust the call a supplier pretend to be a purchaser. That can give you a good understanding of the company’s actual strength and weaknesses                      d. Don’t just use due diligence to confirm the investment. Instead, ask the question:     “Should we walk away now and lose a little bit of money that we have spent on due diligence and bringing the deal to the market, or do we continue this transaction and spend a lot and have a lot of grief later?” – Jeyabalan Parasingam    2. Forget the fact Big Four accounting/audit firms or big banks are involved in doing the due diligence because they too can make mistakes or miss crucial items.   3. Take a central role in the due diligence. Personally oversee the proceedings and be the duty person, as you can hire an accounting firm to do the books, but the people are doing the due diligence might have little to no experience.   4. Make sure the people helping you with due diligence understand the sector well enough and have good enough relationships in that sector, so they can provide information that would not otherwise be available.    Andrew’s categories of mistakes and their antidotes   Andrew has gleaned from the Worst Investment Ever series of podcasts and blogs six main categories of mistakes made by respondents, starting from the most common:   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  He also mentions his six-step investment process, which can help to avoid such mistakes  Find an idea  Research the return  Assess the risks  Create a plan  Execute the plan  Monitor the progress  Andrew’s takeaways  1.Often (Error No. 2) investors fail to properly assess risk. And this research on risk should be clearly separated from research on return.   2.Due diligence 1: Set up a team within your organization or your group solely to assess risk and do due diligence. Its sole responsibility should be to prove why the investment shouldn’t go ahead, the reasons why and explain what the risks are.  One of Andrew’s prior interviewees from London talked about having such a peer-review process within his investment team to produce counter debates, requiring it as part of their stock/company-analysis process.   3. Due diligence 2: Be an eyewitness and just go to see.               a.                a. If you’ve ranked a company they are among your top-10 customers, go and meet them.                b. If a company is shipping goods to a warehouse, go to the warehouse and see.  4.Due diligence 3 and the idea of misplaced trust (Mistake No. 4). People that are cooking the books and playing games, are always going to use big brand names to hide what they are doing. But it doesn’t stop at products. Other brand names can also be used:                a. Customers’ brand names and suppliers                b. Brand names in the audit firms.                c. Brand names of the banks, so:     “To be a great analyst, you must start with the premise: trust nothing, trust no one. In other words, get evidence … even branded companies and big companies and successful companies can easily miss the things … particularly when someone’s really working hard to hide stuff.”  – Andrew Stotz 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 Jeyabalan Parasingam  LinkedIn  Email    Connect with Andrew Stotz astotz.com LinkedIn Facebook Instagram Twitter YouTube My Worst Investment Ever Podcast

Manit Parikh has worked across sectors on transformational programs with organization-wide impact, leading two companies to reach US$300 million in revenue. He is currently working with number three. This has led him to earn the nickname “The Michael Bay of Business”. Manit is working with Yellow as a director of investment and head of the business. Prior to Yellow, Manit has worked with leading Fortune 500 companies in leadership positions. Along with his current position at Yellow, he is also an advisor to various start-ups’ early-stage investors and an international keynote speaker. “Suddenly, a boy who made a million dollars just saw a million dollars go away. And I think that is when I really truly learned the value of hard-earned money and not being greedy, and actually analyzing everything to the core.”  - Manit Parikh    Lessons learned  Analyze and study the business you are planning to invest in.  Don’t be “cocky”, arrogant.  Ask the right questions, ask the wrong questions, but ask them. Why? Because every question brings an answer that raises another question that needs to be asked.   Never be afraid to say “no” to investment, because there are many more out there.  One occasion of success investing with one person or company is no guarantee that they can or will make you money again.   Analyze every facet of a business model, tear it apart and ask every possible question from the founders, because they are the ones asking for money.    Andrew’s takeaways  Andrew has gleaned from the Worst Investment Ever series of podcasts and blogs six main categories of mistakes made by respondents, starting from the most common:   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    Referring to Start-up businesses are usually very risky, so you have to be very careful about having anything to do with them.   Never be the sole creditor for a start-up. When you are the sole provider of funds or the start-up has very limited sourcing for the fund, the company can run out of cash quickly, and the company becomes desperate.   Never invest in a business whose success is dependent on government policy. The policies and economic decision are changing along with the government. To sustain the business as an investor, do not deal with government contracts as they are not stable.  Warning bells should sound when a start-up’s directors claim they have special access through relationships with governmental or regulatory contacts  Diversification of investment sizes and types is always wise.       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     Connect with Manit Parikh   LinkedIn  Twitter    Connect with Andrew Stotz  astotz.com  LinkedIn  Facebook  Instagram  Twitter  YouTube  My Worst Investment Ever Podcast 

Verawat Kirinruttana holds an MBA from MIT’s Sloan School of Management. He also holds a bachelor’s degree in engineering from Chulalongkorn University with first-class honors and gold medal. Verawat is currently a vice president of investment advisory services at Siam Commercial Bank (SCB). In his role, he provides asset allocation strategies and investment recommendations for private banking and affluent customers. Prior to this, he was a vice president of corporate strategy at SCB where he shaped the direction for the bank by developing strategic and tactical business plans and drove many transformation initiatives, such as the national e-payment. Before joining SCB, he was a management consultant at the Korn Ferry Hay Group (now Korn Ferry) at its Southeast Asia office, where he spent more than four years in human capital management, organizational development, and performance management.   “With a lot of analysis and valuation you would believe that found a diamond but management, the corporate governance of that company might not be good at that at the level on the status” – Verawat Kirinruttana Lessons learned  When investing in foreign markets, expect the unexpected. Things can happen that are beyond the mind’s ability to comprehend, events way beyond your control. This can be the case of a management decision and can happen even after a lot of analysis and careful valuation, which you believe puts things within your power. Management or corporate governance of a target company may not be good and when you try to even try to figure out what happened, the unclear nature of the market and the how you access the information can be very really limited.   Solution: Cut losses as soon as possible but in frontier markets, liquidity can be the problem and may not be able to sell your position.    Andrew’s takeaways  Be careful about frontier markets. They can be very attractive, but the actual performance of an investment target may not turn out as good as is shown by the underlying economy. If you can access that market, it does not mean that it will also give you access to the same returns as those that exist in the market. Also the flow of information can be non-existent or scarce so that you don’t really know what is going to happen, even of you know people on the ground.    Liquidity issues are key. A company that is the target of investment should have about US$ 1 million dollars a day in average daily turnover, or else it is too dangerous to put money into.   Using a stop loss methodology for quantitative strategy doesn’t always work. Even having a stop loss in place makes it hard to execute where there is thin volume.   Looking carefully at corporate governance is crucial. Ask yourself, does the management show any real concern about minority shareholders    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    Connect with Verawat Kirinruttana  LinkedIn  Verawat Kirinruttana Connect with Andrew Stotz  astotz.com  LinkedIn  Facebook  Instagram  Twitter  YouTube  My Worst Investment Ever Podcast Further reading mentioned     Alice Schroeder (2008) The Snow Ball  Michael E. Porter (1979) How Competitive Forces Shape Strategy  

Phuong Nguyen is a CFA charterholder. He is a value-oriented and fundamentally driven investor. He has 8 years of experience in the investment industry with various buy-side firms and has lived through some, a few of the tough market times. In his view, the Asian investment landscape is uneven and investors should sharpen their investing acumen beyond the face value of data or information. He manages his family investment account, which has delivered an annualized return of more than 30%, which is more than 15% over the benchmark. Meanwhile, his portfolio since its inception 4 years ago has only sustained an average 14.1% downside volatility compared to 23.9 for the benchmark. He is currently exploring a global career opportunity to apply his rigorous research process and investment acumen. His core expertise is in Asia-Pacific markets and he is a member of the CFA Society Singapore.   “I make it worse by using leverage, Charlie Munger and Warren Buffett talk about the 3 Ls to avoid, which are ladies, liquor and leverage: leverage I used it. It turned out to be bad for the investment.” – Phuong Nguyen   Lessons learned Don’t forget the 3Ls. Phuong referred to Buffett talking about him and his partner Charlie Munger’s attitude to leverage when he said: “There are only three ways that a smart person can go broke: liquor, ladies, and leverage.” Leverage in Phuong’s case meant borrowing money from a broker in the hope of having the money multiply to the extent that the loan can be repaid with interest to leave enough of a gain to profit from. Look out for all potential headwinds. Avoid emotional bias after meeting a company’s smiling faces. No matter how charming a company’s management is, how convincing and humble they are, do not act to invest in a company right away after you meet the company because at that time you will be suffering from emotional bias. Stay away from them for about a week, do more research and only then can you look at the investment again. Despite a company meeting and your feelings about investment going well, emotions should be kept in check.   “Our aversion to leverage has dampened our returns over the years. But Charlie and I sleep well. Both of us believe it is insane to risk what you have and need in order to obtain what you don’t need.” – Warren Buffet   Andrew’s takeaways Be mindful of the effect of confirmation bias. It’s human behavior to look for information that confirms our original views or hypothesis on a matter, and everyone in all fields suffers from that bias. Therefore, investors especially have to work extra hard to find opposing views or arguments against our thesis on an investment idea. Be wary of cyclical. When investing in cyclical type of companies, it can be extremely dangerous. A lot of people like to invest in consumer-type products because generally demand is steady and supply is steady. But when you’re investing in cyclical, there is a much greater risk, which sometimes is what attracts investors because of the old magnet: “high risk, high return”. On company visits. As an analyst for more than 20 years, taking thousands of fund managers on visits to just as many companies, Andrew says that probably 95% of the meetings he attended added no value. In some cases, it made someone either overconfident in liking the company or overconfident in disliking it. Which either way biased their decisions. Andrew agreed with Phuong but said:   “Go out and visit the company. Fine. You may like the company, you may they hate them, but don’t make your decision right way based on the visit alone.” – Andrew Stotz   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 Connect with Phuong Nguyen LinkedIn  Connect with Andrew Stotz astotz.com LinkedIn Facebook Instagram Twitter YouTube My Worst Investment Ever Podcast Further reading mentioned: Retire Before Dad (2018) Liquor, Ladies, and Leverage: How Smart People Go Broke Warren E. Buffett (Feb 2018) Letter to Shareholders of Berkshire Hathaway Inc., reporting on the company’s performance for 2017.  

Ian Beattie is currently the co-chief investment officer of NS Partners London, an investment management boutique. He holds a B.Sc. degree in economics from City University of London and started in the investing business in the early days of January 1992 as an Asian equitist. Since then he has been involved in East Asian and Asian emerging markets. Ian joined NS Partners in 1996, and just a year later, he became head of Asia and has since been focusing on the products closest to his heart, emerging markets, and Asian equity investments in the region.    “I think we’ve got to learn from our mistakes … and to learn from them, you need to know what you got wrong. And some of those are un-forecastable genuinely exogenous events. That’s why you have a diversified portfolio, right?”   - Ian Beattie     Investment journey  Ian started investing CAR Inc., a car rental company based in Beijing, despite the fact that there existed a handful of popular and booming ride-sharing companies in the continent, such as Uber and local operators that posed a threat. The balance sheet looked great and it had a good foundation for its name, with training by Hertz managers who helped to set it up.    “There’s nothing like a globally significant crisis to really test your knowledge of markets, whether it’s how our company works, how an economy works, and how those two are joined up. Pretty exciting learning experiences are not always a pleasant one.”  – Ian Beattie    But after a while, his investment started to fall. What caused it? Ian cites his initial positive assessment about the company’s management proved wrong, but on top of that, he underestimated the threat of the competition. Ian failed to see the bigger picture and the impact that the bigger companies would bring to his stock in the long run.   Emotional attachment was misplaced  As part of the peer review process, younger members of the team had been asking him early on what he was doing and why he wasn’t seeing the risk of car-rent apps such as Uber and their China equivalents and why the company was not getting more cash out of its operations (free cash flow (FCF), the cash a company produces through its operations, less the cost of expenditures on assets. FCF is the cash left over after a company pays for its operating expenses and capital expenditures, also known as CAPEX).     “I’m getting hit with this (strong feedback). And I realized I cannot defend it … If you bought a stock – or a valid investment – for a valid reason, that should still be the reason why you hold onto it. And if that story is broken, then you should sell.”  – Ian Beattie    There have been many cases such as this, wherein an investor’s reason for buying a stock suddenly changes midway through ownership. This happens mostly when the stock starts to depreciate, and when it does, it should be a clear red flag that it is no longer profitable and actions should be taken to prevent further damage. Ian, however, failed to see this flag sufficiently early on in the game.    Reassessing the situation  Ian is reminded of the OODA Loop, a discipline he has used to reset his mindset and that of his team to what is really happening. Created by US fighter pilot John Boyd during the Korean War, the OODA loop is a strategic tool used for analyzing situations for re-orientating in the heat of the moment. Part of it came from a theory to achieve success in air-to-air combat developed out of Boyd’s observations of dog fights between MiG-15s and North American F-86 Sabres in Korea. It is a disciplinary method that helps people remain calm and properly gauge what is being faced and because it’s a loop, it allows for constant re-assessment amid changing conditions.   OODA loop as applied to investing   Observe – the situation, what’s going on with the stock. In the business of investing, it’s more like to observe and identify.  Orient – yourself, if you’re a fighter pilot, but for people in investing, “analyze” the situation.  Decide – Plan what action should be taken according to the situation.   Act – Take the necessary action.     Then go straight back into the loop as conditions change  Ian suggests to observe what’s happening now to see if you have made the right change. For fund managers, that would involve risk control and re-forecasting, which is very important. Look at the new data, because usually if the share price has gone wrong, there’s some new information upon which an investor needs to redo their forecast, and he suggests being honest to the point of being brutal.     Peer review helps with that honesty   The great advantage of institutional investors is information on costs and the presence of a team, which Ian’s firm uses to employ a peer review mechanism. He says it does not matter whether investors have been in the business a few years or 30, it is wise for all team members to subject their decisions to assessment by the team, members of which might have power to veto a decision. This process is applied not just when deciding about buying a stock, but when reviewing its progress. Ian says the veto is used to empower and encourage dialogue rather than to score points. He says this process keeps everyone grounded when stocks are going up and the team presenting their idea sees their stock going up, and by doing so, also catches problems before the investment goes “horribly wrong”.   “I know the theme for your series here is how the emotion gets involved. This is an emotional business. So the peer review, as well as obviously … more information,  its most powerful tool is as an emotional check.” – Ian Beattie      Teams always contain people with varying talents   As Ian finished the main part of his interview with the story of the hedgehog and the fox and relates it to today’s market analysts. Hedgehogs make the best out of what nature has given them and use it to their advantage. They were given spikes and they use them for self-defense. They excel at one thing – their specialization. Foxes, however, do not have spikes but are eclectic and use whatever skills they can find to be able to fend for themselves. They take risks and adapt their skills to the kind of environment they are in.  In terms of approach, fund managers must liken themselves to a fox in need of hedgehogs, “because nobody knows that subject better than a hedgehog”. A good team must consist of a diverse group of people with different specializations, and led by someone who can become a good listener and has the ability to make decisions not based on what is for his own betterment, but for the good of all involved.    “I think that’s the thing about our business and about the markets in general, people who are good at it, people who last a long time … have to have an unusual balance of arrogance, because you have to believe you can beat the market, when a lot of academics out there will tell you that you can’t. But at the same time, you need to be need to have a huge  amount of humility.”  – Ian Beattie      Ian

This podcast is dedicated to John Bogle   Michael and Andrew would like to dedicate this podcast episode to the icon who passed away just before this recording was made, John Bogle, founder of the Vanguard Group, and author of such classics on investing as The Little Book of Common Sense Investing was a real Vanguard and revolutionary. Bogle started the world’s first index fund so they tip their hats in tribute.     Guest profile     Michael Falk is a CFA charter holder and a certified retirement counselor. He is a partner at the Focus Consulting Group and specializes in helping investment teams improve their investment decision making, investment firms with their strategic planning, and mediating firms’ successions. Previously, he was a chief strategist at a global macro fund and a chief investment officer in charge of manager due diligence and asset allocation for a multibillion-dollar advisory practice. Michael is an author, co-author and frequent speaker. in 2016.  He wrote the CFA Institute Research Foundation monograph Let’s All Learn How to Fish…to Sustain Long-Term Economic Growth. He is on the CFA Institute’s approved speaker list. In the past, he has taught on behalf of the CFA Society Chicago in their Investment Foundation Certificate program. He has been a contributing member of the Financial Management Association’s practitioners’ demand-driven academic research initiative group and taught at DePaul University in their Certified Financial Planner Certificate Program. He’s frequently quoted in the financial press and presents in industry events.    Moneyball man  Michael was an athlete who played competitive baseball until he was 31 years old. But in his early 20’s, he realized that he couldn’t make a career of this, so he decided to get an education, and graduated from the University of Illinois with a B.S. in Finance, adding to his interest in growing wealth. It caught his attention, but it wasn’t about getting large amounts. It was about how money drove behavior. But still, he played ball and was working on the side until his body’s aches and pains started to surface.      Summary  In this episode, Michael recounts his experiences as a private wealth manager advising a client on what to do about holdings in two big companies. The story revolves around what is seemingly his not-so-lucky share-price level, US$8/share. He shares his take on the fortunes of these huge companies and the reasons why he didn’t take the risk of investing in them, even though he was an educated investor and had advised his client to hang on to the stocks. Andrew will tell add why execution is a vital part of building an investment plan through his six-step process. Inherent in that is how crucial it is to avoid taking huge positions aggressively so you don’t end up in the same sad state as do most investors.      “Lose profitably. Use your takeaways and your learnings from those losses to not repeat the same mistakes. They say there’s no such thing as failure if you’re learning. So, my parting comment is, if you’ve got to lose, at least lose profitably.”  – Michael Falk     W$8/share investments and the odd stories behind them  Apple Inc. (AAPL:US) is now trading at US$199.23/share  Apple was starting to drop, before Steve Jobs returned and saved the company. It was trading at around $8/share. Michael was a fan of Apple computers and so his friend who was curious about the drastic consequences if the company should fall. He was confident that it wouldn’t. Buying the stock was an absolute steal, given these two probable scenarios: 1) The company would rebound, or 2) Microsoft would buy them because of the value of the technology. Surprisingly, he didn’t follow the instructions that he gave to his friend. He didn’t follow the instruction he gave to his friend.     Philip Morris  Philip Morris International Inc. (PM:US, $86.19); Altria Group Inc. (MO:US, $56.94)  Michael started his career in private wealth management. He had a client named Jack, who inherited a stock portfolio from his father. As he was doing an audit on the low-cost basis portfolio, they were unable to decide whether or not to hedge out the risks. One of the companies they were looking at was Philip Morris, which was also trading at $8/share too. Philip Morris had started to take a BD (broker-dealer) at that time because that was when the US government was going after the tobacco companies in terms of the healthcare lawsuits.    Michael’s analysis:  1.The dividend payment at that time was 8%, and he believed it wouldn