My Worst Investment Ever Podcast

In this episode of Investment Strategy Made Simple (ISMS), Andrew and Larry discuss a chapter of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this first series of many, they talk about mistake number one: Are you overconfident in your skills?LEARNING: Don’t be overconfident. Look for value-added information when researching an investment. “When you trade, understand that you’re competing against the market’s collective wisdom.”Larry Swedroe In today’s episode, Andrew chats with Larry Swedroe, head of financial and economic research at Buckingham Wealth Partners. You can learn more about Larry’s Worst Investment Ever story on Ep645: Beware of Idiosyncratic Risks.Larry deeply understands the world of academic research and investing, especially risk. Today Andrew and Larry discuss a chapter of Larry’s book Investment Mistakes Even Smart Investors Make and How to Avoid Them. In this first series of many, they talk about mistake number one: Are you overconfident in your skills?The majority of people are naturally overconfidentThere’s a lot of research showing that human beings tend to be overconfident in their skills. If you ask people, are you liked by others more than the average person? Are you a better lover than the average person? Can you drive better than the average person? It doesn’t matter what the question is; the answer from a vast majority is that they think they’re better than the average person. According to Larry, this is actually a good healthy thing. Imagine getting up daily, looking in the mirror, seeing yourself, and thinking you’re dumb, ugly, stupid, and nobody likes you. You’d live a sad life. So it’s good to feel better about yourself as long as you don’t make mistakes.Overconfidence isn’t such a good trait when it comes to investingLarry says that the market is made up of all types of investors. If some investors are going to outperform, then some investors must underperform. The market must have victims to exploit. Most investors tend to be overconfident and think they’re a lot smarter than the average person, so they will be able to control them. But according to evidence, that’s dead wrong because people are not competing one-on-one.Female investors get better returns than men due to underconfidenceWomen are not better at stock picking than men. The stocks they buy perform just as poorly as those that men buy. And the stocks they sell go on to outperform in equal measure. However, men have overconfidence in skills they don’t have, while women simply know better. They don’t overestimate their skills as much as men do, so they trade less and have fewer turnover costs, resulting in better returns. Interestingly, married women do worse than single women because they get influenced by their husbands, while married men do better than single men because they have the influence of the sage counsel of their spouses.Does hard work, training, and knowledge play any role in outperformance?Generally, the more knowledge you have, the wiser you become. But the game of investing is very different than, say, the game of tennis, where you’re playing one-on-one. During a one-on-one match, whether tennis, chess, or any other similar game, minor differences in skill lead to considerable differences in outcome. As the competition gets more challenging, it becomes harder to win. And luck becomes more determined.According to Larry, when we’re playing a game of investing, we’re not competing one-on-one. We’re competing against the collective wisdom of the marketplace. That’s a much different competitor. That’s why Warren Buffett today has difficulty keeping up his winning streak of the 80s.The second related mistake is when researching a company, a famous person or a newscaster gives investors enticing information about a company he’s touting, and the investor decides they should buy that. They’re confusing information from this person with value-added information. They assume they’re the only ones who know this information. Yet thousands of other people could be watching this famous person or newscaster. The truth is the average person doesn’t have value-relevant information, and they’re competing against the market’s collective wisdom, which is a much tougher competitor than one-on-one. This is why only a few active managers can outperform persistently.Know who is on the other side of the trade before you executeWhenever you buy a stock, you should stop before you execute and ask yourself who’s on the other side of the trade. Ninety percent of the trades are done by sophisticated institutions that hire world-class mathematicians and scientists with PhDs in finance, invest in massive technology, and have more access to information than an individual investor. So are you seriously going to be overconfident and believe you know more than these institutions?Investing has become a lot harder than it was 20 years agoLarry says investing is much more complex today and will continue getting harder. There are several reasons why this is the case.1. Increased financial innovationsBefore the 1980s and around 1990, the only operating model we had for asset pricing was the capital asset pricing model (CAPM). This model could only explain about two-thirds of the differences in returns of diversified portfolios. This meant there were tremendous opportunities to generate alpha.Along came a bunch of researchers who found two characteristics that added explanatory power. One of them was that small stocks outperform large stocks. The other was that cheap stocks outperformed expensive stocks. So now, on top of CAPM, there were two other factors: size and value. Now investors could no longer claim to outperform just by buying small companies.Research by Jegadeesh and Titman found a momentum factor. This was that stocks that had outperformed in the past six months to a year roughly had a tendency—a bit more than half the time—to continue outperforming over the next short period, on average, five-six months. So now active managers couldn’t claim alpha by buying positive momentum stocks, avoiding negative ones, or shorting them.Then in 2013, Robert Novy-Marx wrote a paper on profitability. He found that you could outperform your position by buying more profitable companies—Just as Warren Buffett did.Most recent research by Cliff Asness and the team at AQR combined profitability with other factors related to what Buffett had been saying; you shouldn’t just buy cheap, profitable companies. You want to buy them when their earnings are more stable. Such companies don’t have a lot of financial leverage, making them quality companies. So now we have a factor called QNJ: quality minus junk. So you buy the quality stocks and short the junk ones.With all these financial innovations in place, investing as an individual gets harder because stock selection strategies are not a privilege to a select few. Anybody can invest in small-cap stocks en masse. Therefore anybody can capture that alpha or cause it to disappear.2. Increased financial knowledge and competitionThere was no financial theory until the late 60s and early 70s. People managing money were not finance majors and didn’t know finance theory. Today, everyone managing money has easy access to financial knowledge. With increased knowledge comes tougher competition and the paradox of skill. When competition is tougher, it becomes harder to differentiate yourself.It’s the smarter, more informed people playing the game now making it harder for others to outperform by a wide margin.3. Retail investors have been channeled into hedge fundsFor there to be winners in the market, there must be victims to outperform. In 1945, after World War 2, 90% of all stocks were held by individual investors in their brokerage accounts. So they were doing most of the trading. There were only 100 mutual funds in the US in the 1950s. Today those numbers are entirely reversed. Most of the trading is done by institutions. This means when you’re trading, you’re likely trading against giants like Renaissance Technologies, Citadel, or Morgan Stanley. Whereas in the 40s and 50s, you were trading against another naive investor. Today, retail investors have been channeled into funds managed by the most innovative people.4. Dollars are growing while sources of alpha are shrinkingThe sources of alpha are continuously shrinking while the supply of dollars chasing them has grown dramatically. In the late 90s, there was $300 billion in hedge funds. Today, there’s over $5 trillion. On the other hand, the sources of alpha are shrinking because the academics have converted into beta—which is just a systematic characteristic that’s replicable. It’s no wonder it’s becoming harder and harder to trade.Will the largest hedge funds remain the top players, or will another group rise in the next 10 years?Larry predicts that the largest hedge funds, such as Renaissance and Citadel, will grow as more people go into systematic passive strategies. A few active managers who are becoming successful will likely continue to gain market share. This is likely to create a problem for the managers. This is because the only way they can continue generating alpha is to stop taking assets. Otherwise, they’ll get too big and have to diversify or increase their market impact costs. Very few managers will turn down the chance to earn higher AUM fees.Final thoughts from LarryDon’t be overconfident. When you’re overconfident, you’ll think you can outperform when the odds say you’re not likely to be able to do so. Also, don’t confuse information—something everybody knows—with value-added information—something nobody else knows or you can interpret better.About Larry SwedroeLarry Swedroe is head of financial and economic research at Buckingham Wealth Partners. Since joining the firm in 1996, Larry has spent his time, talent, and energy educating investors on the benefits of evidence-based investing with an enthusiasm few can match.Larry was among the first authors to publish a book that explained the science of investing in layman’s terms, “The Only Guide to a Winning Investment Strategy You’ll Ever Need.” He has authored or co-authored 18 books.Larry’s dedication to helping others has made him a sought-after national speaker. He has made appearances on national television on various outlets.Larry is a prolific writer, regularly contributing to multiple outlets, including AlphaArchitect, Advisor Perspectives, and Wealth Management. [spp-transcript] Connect with Larry SwedroeLinkedInTwitterWebsiteBooksAndrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever Podcast

BIO: Brian Feroldi is a financial educator, YouTuber, and author. His career mission statement is “to demystify finance.”STORY: Brian invested in an oil pipeline company with take-or-pay contracts. This meant that the company would get paid either way if the price of oil or natural gas went up or down. Prices went down and despite the contract, the pipeline’s stock went down because its customers couldn’t afford to pay. Brian lost 70% of his entire portfolio.LEARNING: Don’t use options as an investment strategy. Never let one company become your largest position. Be careful about trying to leverage beyond your capability. “When my research makes me unbelievably bullish about something, that probably means I’m blind to some risk.”Brian Feroldi Guest profileBrian Feroldi is a financial educator, YouTuber, and author. His career mission statement is “to demystify finance.” He loves to help other people do better with their money, especially their investments. He has written more than 3,000 articles on stocks, investing, and personal finance for the Motley Fool.Worst investment everBrian invested in a company in 2013, about nine years into his investing journey. Though not an expert, he completely understood business fundamentals. He had a framework for what kind of companies he was going after. The company Brian invested in was Kinder Morgan, an oil pipeline company. That means they don’t go out and find the oil but own and operate pipelines that move oil and natural gas from the extraction point to a processing plant. The company then takes a fee for moving the oil.What really attracted Brian to that business model was that it had take-or-pay contracts in place. Meaning that if the price of oil or natural gas went up or down, Kinder Morgan would get paid either way.In theory, this company had locked in guaranteed recurring revenue. In addition, it was run by its founder, Richard Kinder, who owned tons of stock and continually bought more. The company had a 4% dividend yield at the time, plus a realistic growth plan for them to expand that dividend by about 10% per year. So from the outside, it looked like a very low-risk company that could earn Brian a high dividend yield.The more Brian studied the company, the more bullish he became on its potential. So over time, he would add to the stock because he thought it was attractive. Within no time, Kinder Morgan became Brian’s number one position.At the time, Brian was learning about options and how they work. He set up a synthetic long on Kinder Morgan. Synthetic long is when you sell a long-dated put, which brings in cash today, and you use that cash to buy a long-dated call option. Essentially, you get to benefit from the upside. So if that stock goes up, you get paid for that stock to go up ahead of time. So the returns to the investor are enormous on a percentage basis. The downside to a synthetic long is if the stock price falls, you’re on the hook for pure leverage because you don’t own the shares. Brian’s confidence level in this thing was sky-high because it looked so bulletproof. After he set up this position, the oil and natural gas prices suddenly tanked by more than 50%. There was simply an oversupply on the market.What confused Brian at the time was that Kinder Morgan’s stock was going down a lot during this downturn. The company had take-or-pay contracts in place, and it got paid no matter the energy price, so why was this stock going down?Even though Brian’s position was in the red, he added to it because he believed it would recover and go up. Kinder Morgan’s stock ended up falling 70%. This was because the take or pay contracts only matter if the person on the other side of the transaction can afford to meet their end of the agreement. So while the company had a guaranteed locked-in revenue in place, those customers were dependent on the price of oil and natural gas and were hurting. The customers literally couldn’t pay. Once Brian eventually learned that, he capitulated and took up the largest loss he’s ever taken.Lessons learnedDon’t use options as an investment strategy.Never let one company become your largest position. Instead, put a little capital into different companies and watch them grow and flourish.Be careful when investing in an industry that depends on market price luck for the investment to work out.When your research makes you unbelievably bullish about something, you’re likely blind to some risk.Have some rules for the maximum amount you want to put into an idea because you can still be wrong no matter how confident you are.Andrew’s takeawaysDon’t be seduced by your research about a company that fits in the supply chain.Contracts can be renegotiated. So if you find yourself in a bad situation, talk to the people you signed a contract with and renegotiate the terms.Be careful about trying to leverage beyond your capability.Actionable adviceWrite down a list of the possible business risks you want to avoid. Then whenever you’re researching an investment, run it through that checklist. This will help you avoid making the same mistake again.Brian’s recommendationsBrian recommends reading books and watching YouTube videos to get all the information you need to make good decisions. Brian also recommends checking out his free investing checklist—the exact investing checklist he uses. The checklist contains both the positive attributes that Brian looks for in a business and the risks he wants to avoid.No.1 goal for the next 12 monthsBrian’s number one goal for the next 12 months is to keep the flywheel that he has going and continue to grow his business.Parting words“Learn to love the process of becoming a better investor. If you can actually find joy in the process of becoming a better investor, you’ll actually become one.”Brian Feroldi [spp-transcript] Connect with Brian FeroldiLinkedInTwitterYouTubeBlogBookAndrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever PodcastFurther reading mentionedAtul Gawande (December 2009), The Checklist Manifesto: How to Get Things Right.

BIO: Matt LeBris is a born and raised NY’er who inevitably caught the hustler’s spirit that fills his hometown streets.STORY: Matt got an opportunity to be part of a successful business venture in his early 20s. He was making good money and living a good life. Unfortunately, the business went down, and he took an unpaid internship with Daymond John of Shark Tank. Matt’s biggest mistake was to continue living large even though he no longer had money coming up. He blew over $80,000 of his savings by living way above his means.LEARNING: Understand how you’re subconsciously programmed about money. Live below your means. “Understand how money works. If money’s not coming in, be very cautious of how it’s going out.”Matt LeBris Guest profileMatt LeBris is a born and raised NY’er who inevitably caught the hustler’s spirit that fills his hometown streets. A Forbes 30 Under 30 nominee, Matt has worked with Daymond John of Shark Tank as well as hosted a top 1% globally ranked podcast, Decoding Success. His life mission: impact one person a day, and that’s what he’s here to do today.Worst investment everWhen Matt was in college, he was very fortunate to have had an opportunity to surround himself with individuals a little older than him in a particular business venture. It was a New York City hospitality throwing various events. Matt was in his early 20s and raking it in. He was doing good for himself and felt proud to make a lot of money, drive a nice car, travel, and eat out without making a dent in his bank account.At a certain point, the business started to change. Matt also began to change as a person. This led him to intern with Daymond John of Shark Tank. It was a leap of faith for Matt because it was an unpaid internship. What Matt didn’t do was change his lifestyle. He wanted people to still think he was the rich young man he was before. Even though Matt now had no money coming in, he continued to live above his means just to maintain an image. He ended up blowing $80,000, taking Ubers instead of taking the train and eating at the most lavish restaurants instead of eating at home. Matt’s need to appease his ego was his worst investment ever. He is still trying to forgive himself for that.Lessons learnedUnderstand how you’re subconsciously programmed about money.Live below your means.Turn your worth inward.Andrew’s takeawaysYour life is going to be full of ups and downs. You’ve got to manage during your uptimes to have the cushion you need to survive the downtime.Spend as little as you can and take pride in that. This will keep you happy even during your worst times.Actionable adviceUnderstand how money works. If money’s not coming in, be very cautious of how it’s going out. Put your ego aside and find any possible ways to make money.Matt’s recommendationsMatt recommends talking to somebody like a therapist if you’re feeling down or struggling to regularly work through these issues.No.1 goal for the next 12 monthsMatt’s number one goal for the next 12 months is to adopt the mindset of John Gordon’s simple equation: E+P=O (events plus perspective equals the outcome.)Parting words “I’m giving you your kudos, Andrew. Thank you so much for the opportunity to join you here on this platform. Shout out to everyone that’s listening.”Matt LeBris [spp-transcript] Connect with Matt LeBrisLinkedInTwitterFacebookInstagramYouTubeBlogPodcastAndrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever PodcastFurther reading mentionedT. Harv Eker (October 2009), Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth

BIO: Pim van Vliet is Head of Conservative Equities and Chief Quant Strategist at Robeco. He is responsible for a wide range of global, regional, and sustainable low-volatility strategies.STORY: Pim wanted to make more money investing, so he decided to go all in on a cheap stock. He believed the price would eventually go up as it had done a few years back. Unfortunately, the company went bankrupt, and Pim lost 75% of his investment.LEARNING: Don’t be overconfident and over-optimistic when investing. Just because it’s cheap doesn’t mean you have to buy it. “I thought taking risks gives you a return. That’s not always the case. Taking more risk could give you a lower return.”Pim van Vliet Guest profilePim van Vliet is Head of Conservative Equities and Chief Quant Strategist at Robeco. He is responsible for a wide range of global, regional, and sustainable low-volatility strategies. He specializes in low-volatility investing, asset pricing, and quantitative finance.He is the author of numerous academic research papers and various books.Worst investment everPim has been fascinated with money-saving ever since he was a small kid. His father was an entrepreneur who had a family business. Growing up, Pim would sometimes work at the family business and save the money he made in a savings account. He would get good interest. He learned about the compounding of interest in the process. As Pim learned more about saving, he decided to go into a mutual bond fund to earn more return on his money. Now he would make an 8% yield, up from 6%.This was during the 90s when the stock market became increasingly popular. The newspapers started to write more about it. Pim was getting a bit bored by mutual bond funds because he wanted to make more money. Bonds were just very low, volatile, and boring. Being an eager kid, Pim started to follow the news and learned about a Dutch aircraft manufacturer trading for $13. He researched and discovered that the stock price had once been $40, so it was cheap he thought.Pim believed the stock price would return to $40, so he invested in it. His advisor at the bank cautioned him against investing in just one stock. But of course, Pim was overconfident that the stock price would only go up. So he put a sizeable amount of his wealth into this one stock. Then things went sour. The stock price went down and down. The company eventually went bankrupt. Luckily, Pim could get out at $3 but lost 75% of his investment.Lessons learnedDon’t be overconfident and over-optimistic when investing.It’s more important to protect your downside than to keep your upside.Andrew’s takeawaysJust because it’s cheap doesn’t mean you have to buy it.Don’t go all in on one stock.As an individual investor, having more than 10 stocks would be overwhelming. And to have less than five would leave you with too much risk if any of them went bad. So invest in 10 stocks and put stop losses on them.Actionable adviceIf you’re young, take some risks. Risks allow you to learn even if you don’t get a reward for it in investing. So take some controlled risks with the objective of learning instead of becoming rich.Pim’s recommendationsPim recommends reading good investment books that are time-tested such as Benjamin Graham’s books and Warren Buffet’s philosophy.No.1 goal for the next 12 monthsPim van Vliet’s number one goal for the next 12 months is to continue living his dream with his family and colleagues.Parting words “I really enjoyed it. Thanks for having me, Andrew.”Pim van Vliet Connect with Pim van VlietLinkedInTwitterWebsiteBookAndrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever Podcast

In this presentation, I will introduce you to our MSCI Sectors and their attractivenessClick here to get the PDF with all charts and graphsWhat do you think: Which of the global sectors is most attractive?We use GICS sector classificationGICS The Global Industry Classification Standard (GICS®) is an industry classification system developed by Standard & Poor’s Financial Services LLC (S&P) and MSCI in 1999GICS works well for the global financial communityMSCI separates stocks into 11 different sectorsEnergy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Information Technology, Communication Services, Utilities, and Real EstateThen 25 Industry groupsSome sectors such as Industrials have three Industry groups as follows:Capital GoodsCommercial & Professional ServicesTransportationThere are 74 industriesWithin Transportation Industry Group there are five main Industries1) Air Freight & Logistics, 2) Passenger Airlines, 3) Marine Transportation, 4) Ground Transportation, and 5) Transportation InfrastructureThere are 163 Sub-IndustriesFinally, within the Industrials Sector, the Transportation Industry group, the Transportation Infrastructure Industry, are 3 Sub-Industries1) Airport Services, 2) Highways & Railtracks, and 3) Marine Ports & ServicesGICS sectors include 1,508 Developed Market companies, total market cap is about US$53trnThe largest sector is Info. Tech. at US$11trn market cap and consists of 183 companiesThe smallest is Real Estate with a market cap of US$1.5trn and 96 companiesWhat is your investment framework?Our investment strategies for ETFs and stocks come from our FVMR frameworkWe backtest and optimize the strategy for the factors that have worked best in each marketWe do all our research in-houseWe don’t rely on other people’s researchWe might of course get ideas from others, but we then test those ideas in our FVMR frameworkThe benefit of an investment framework is that it forces discipline when emotions run highEmotions from wild market events can cause you to make rash and costly decisionsTo avoid this, stick to a frameworkOur framework relies on data & structure, not just a feeling or opinionManagementIs responsible for producing earningsInvestorsSet the price the company trades atThere are 4 Elements to our FVMR frameworkFundamentals: Strong profitability shows a company is managed well.We prefer high or rising profitability.Valuation: Shows how the market perceives the stock.We prefer good fundamentals at relatively cheap valuations.Momentum: We try to avoid “value traps” by looking for positive price and earnings momentum.At times, low momentum signals an out-of-favor opportunity.Risk: We prefer low business and price risk.Not every stock is going to fly; some just provide stable returns and strong dividends.FundamentalsInfo. Tech has a 23% ROE; Health Care, Cons. Staples, and Energy are each earning 20% ROE15% average is higher than the long-term average of 12%Info. Tech. has a strong 16% net marginThe current market average net margin of 10% is still much higher than the long-term average of about 6%5 sectors have 7-8% net marginWhat you have learnedEven after difficult times, Info. Tech. still has a high 23% ROE and a strong 16% net marginHealth Care, Cons. Staples, and Energy are each earning strong 20% ROEAverage ROE is 15%, higher than 12% LT averageThe current average net margin of 10% is much higher than the LT average of about 6%Info. Tech and Health Care are most profitableValuation24x PE for Info Tech. is highest; Financials at 11x and Energy at 8x are the cheapestFinancials look interesting at this levelGenerally, you buy cyclical energy and materials sectors when PE is high which is when earnings are at the bottom of the cycleInfo. Tech. is crazy expensive at 5.4x PB, Cons. Staples and Health Care are also expensiveFinancials look attractiveEven after adjusting for cash, Info. Tech companies are fixed asset lightExpensive Info. Tech., Health Care, and Cons. Staples; cheap Comm. Services and FinancialsFive sectors are yielding more than 3%, signaling they are potentially cheapFinancials look interestingFinancials are most attractive, Info. Tech. and Real Estate leastWhat you have learned24x PE for Info Tech. is highest; Financials at 11x and Energy at 8x are the cheapestFinancials look interesting at this levelBuy cyclical energy and materials when PE is highInfo. Tech. is crazy expensive at 5.4x PB, Cons. Staples and Health Care are also expensiveFive sectors are yielding more than 3%, signaling some are potentially cheapMomentum2023 revenue growth expectations are a low 2%, highest is Cons. Disc., lowest is Energy2023 consensus earnings growth flat, up at Financials, Cons. Disc., and UtilitiesBest 6-mth price momentum at defensive sectors: Health Care, Cons. Staples, and UtilitiesReal Estate has been hit hard from Fed rate hikesInfo. Tech., Energy, and Materials are best 3-year performers, Real Estate worstWhat you have learnedLow 2023 revenue growth expected highest growth at Cons. Disc., is Energy2023 consensus earnings growth flat, up at Financials, Cons. Disc., and UtilitiesBest 6-mth price momentum at defensive sectors: Health Care, Cons. Staples, and UtilitiesInfo. Tech., Energy, and Materials are best 3-year performers, Real Estate worstFinancials, Cons. Disc., and Utilities look interestingFinancials - Cheap and good momentumCons. Disc. - Strong earnings momentumUtilities - Weak fundamentals, but cheap and good earnings and price momoInfo. Tech, Health Care, and Cons. Stapes strong, but expensiveInfo. Tech. - Strong fundamentals but expensiveHealth Care - Strong fundamentals and price momo, but expensiveCons. Staples - Strong fundamentals and price momo, but expensiveEnergy and Materials appear cheap…butFor cyclicals we usually buy when expensiveKey points and the bottom lineFinancials, Cons. Disc., and Utilities look interestingInfo. Tech, Health Care, and Cons. Stapes strong, but expensiveEnergy and Materials appear cheap we usually buy them when expensiveClick here to get the PDF with all charts and graphs Andrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever Podcast

BIO: Logan Nathan is the founder and CEO at i4T Global. He’s a digital transformation specialist, a serial startup entrepreneur, a board director and advisor, and an angel investor.STORY: Logan offers time-tested advice on how to launch a successful software product.LEARNING: Focus on customer experience and satisfaction to win confidence. “The culture within you as a supplier is vital in building trust with your client.”Logan Nathan Guest profileLogan Nathan is the founder and CEO at i4T Global. He’s a digital transformation specialist, a serial startup entrepreneur, a board director and advisor, and an angel investor.We won’t discuss Logan’s worst investment story in today’s episode because he shared that in Ep374: Your Solutions Are with Your Advocates Talk to Them. Today we’ll discuss what’s been happening with his business over the last few years. He’ll also offer time-tested advice on how to launch a successful software product.Logan’s business—i4T Global—provides a Field Services Management platform for people or companies that manage property assets on behalf of their clients. The platform automates most of the work creating efficiency, compliance, and safety easier. In doing so, it brings more tenants.How to hire and work with the right developersIf you’re looking to hire a developer/s for your new software, Logan’s advice is to go to credible supplier platforms, such as LinkedIn. Here, you can independently verify client testimonials of various developers. This will help you ascertain whether they can do what they claim to do.Secondly, before you hire a developer, ensure you make them understand your business requirements, not just your technical needs. Agree on what happens if you don’t get what you want, how changes will be made, and the penalty for not delivering on the agreed deliverables.A frank conversation with the supplier about current and future business requirements is crucial. Agree on what should happen as your business grows and requirements change. Will the supplier grow with you? Do they have the agility to deliver what your business needs promptly?Focus on the customer experience and satisfactionLogan believes delivering top-notch customer experience is the key to running a successful software business. His advice is to have a process that allows you to fully understand the customer’s requirements and deliver them as requested. To achieve this, you need a communication channel that collects customer feedback regularly.To continuously offer services that fulfill your customers’ requirements, you need to understand the changes in your industry. Then reiterate to provide more benefits, even if your customer hasn’t requested them.How to win the confidence of your customersBuilding a relationship with your client will guarantee you a return customer. The best way to build a relationship is to win their confidence by delivering your value proposition. When a customer requests for a piece of change—which will happen often—document the request, understand the business requirement and then deliver it on time, every time. Doing this will show the client you’re reliable and want to stay with you long-term.Andrew’s takeawaysCreate a minimum viable product (your SaaS product), have a feedback mechanism from the customer, and then ensure all feedback is dealt with promptly so your customer can have a smooth experience with your product.When looking for suppliers, first try to independently verify their processes. When you find a supplier you’d like to work with, ensure they understand your business requirements and deliverables.Actionable adviceMake sure your supplier understands your business service level requirements.Ensure any business you’re dealing with has a culture of fully understanding business deliverables before developing the code.No.1 goal for the next 12 monthsLogan’s number one goal for the next 12 months is to focus on global growth. This means the organization needs to understand different cultures, how to deliver to different time zones, and stay efficient to minimize costs while providing clients with maximum value around the clock.Parting words “Your supplier is your heartbeat in terms of delivering your products to your clients. So keep them as an extension of your business, not as an outsider that’s there to just deliver a piece of work.”Logan Nathan [spp-transcript] Connect with Logan NathanLinkedInTwitterWebsiteAndrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever Podcast

BIO: Louis-Vincent Gave is the Chief Executive Officer of Gavekal, a Hong Kong-based company he co-founded over 20 years ago with his father, Charles, and Anatole Kaletsky.STORY: Louis’s father invested one million dollars in a portfolio of 10 Asian companies. Louis was managing this portfolio, whose size was disproportionate to his earnings. He was earning $50,000 annually at the time and had never owned a portfolio this big, which made him sick.LEARNING: Portfolio sizing matters tremendously. Never under or over-position yourself. Invest with people who have experience. “Know your own weaknesses and don’t put yourself in a situation that plays to those weaknesses.”Louis-Vincent Gave Guest profileLouis-Vincent Gave is the Chief Executive Officer of Gavekal, a Hong Kong-based company he co-founded over 20 years ago with his father, Charles, and Anatole Kaletsky. Gavekal has grown to become one of the world’s leading independent research providers to institutional investors around the globe. Louis has written seven books. His latest, Avoiding The Punch, published in 2021, deals with the challenges of building resilient portfolios in inflationary times.The real challenge of venturing into ChinaBefore getting down to Louis’s worst investment ever, he spoke to us about his strategy to build a market for his company in the Chinese market. His company, Gavekal, has operated successfully for over 20 years.When Louis started Gavekal in Hong Kong in the early 2000s, it was evident that China would be a massive factor in the global economy. There was a huge gap in understanding China’s role in the world and people’s understanding of it. Louis and his father figured they could try to monetize that gap. So they started an independent research firm. It was a macro research firm but with a strong China angle. Louis has tried to build up his expertise in China over the years.According to Louis, the real challenge in China is always getting a clear picture. Many foreign investors don’t trust the available data.How to succeed in the Chinese marketLouis says that the important thing for a foreign investor eyeing the Chinese market is to put things into context. You need to relate the economic data and the policy pronouncements to what you hear from corporations.So when Louis and his father entered the market, they talked to the corporates and policymakers to put together a picture that was as close to the truth as possible.Worst investment everLouis grew up very privileged. His dad had been a very successful money manager and had made much money selling his firm to Alliance capital in the mid-90s. After the sale, he retired. At the time, Louis was in Asia when the Asian crisis hit, and everything went bust. Louis’s dad called and told him he wanted to invest a million dollars in 10 high-quality blue-chip Asian companies. This was in August 1998.Louis earned $50,000 a year, so managing a one-million-dollar portfolio was a huge deal for him. Between August and October, the portfolio fell by 60%. Louis was literally sick of looking at these positions where, on every individual position, he was losing more than his annual salary. Then between October and December, the market started stabilizing. By March, the portfolio was actually making money. Louis was keen to take it off while it was making money.Because the portfolio size was so disproportionate to Louis’s earnings, he was not sleeping for days on end.Lessons learnedPortfolio sizing matters tremendously.Never under or over-position yourself.Be clear about what your risk tolerance is on individual positions.Know yourself as an investor.Don’t be driven by emotions.You don’t trade against the market. You trade against yourself.Andrew’s takeawaysInvest with people who have experience.Actionable adviceIf you’re starting off, start small. Figure out what you’re good at and what you’re not. There’s no magic formula. The most important thing is knowing your weaknesses and not putting yourself in a situation that plays to those weaknesses.Louis’s recommendationsLouis recommends subscribing to Gavekal’s free newsletter to learn more about investing. He also recommends reading Kevin Muir, who writes The Macro Tourist, to learn how to keep your emotions in check,No.1 goal for the next 12 monthsLouis’s number one goal for the next 12 months is to figure out the best way to play emerging markets and survive.Parting words “Thanks a bunch for having me.”Louis-Vincent Gave [spp-transcript] Connect with Louis-Vincent GaveLinkedInTwitterWebsiteBooksAndrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever Podcast

BIO: Adam Rosen is an entrepreneur who loves to support business owners and share his rollercoaster startup journey to help those on a similar path.STORY: As soon as Adam was done with college, he co-founded a business. He gave his all to the business for four years and enjoyed little success.LEARNING: Get to product market fit as quickly as possible. Focus on delivering something that the client wants to use forever. “Every single business owner has a responsibility to build their company to sell it from the start.”Adam Rosen Guest profileAdam Rosen is an entrepreneur who loves to support business owners and share his rollercoaster startup journey to help those on a similar path. He is the founder of Email Outreach Company, where they do automated email outreach to get startups on more sales appointments without the hassle.Worst investment everComing out of college, Adam had an excellent opportunity to make a good amount of money. He decided to start his first business—with two other college mates. The company wasn’t funded in the first year. The founders didn’t take any salary from the business. Adam had to work in a restaurant on weekends to keep his bank account going. In the second year, the founders raised capital.The next four years were a roller coaster. The company had some decent success, but Adam never paid himself. He was literally living on his credit card for years, thinking he would get his big break soon. And it never happened.The founders sold the company but didn’t get much for it. They simply took the exit deal to ensure their customers could end up in a good spot and the business could live on.Lessons learnedGet to product market fit as quickly as possible.Churn can be a killer for any business.Find the reality of your business as soon as possible; are you profitable or not?Andrew’s takeawaysBefore entering the startup world, understand that you’ll be trapped in that situation. So be sure you’re doing the right thing with the right people.The startup world has no badge of honor for not paying yourself.Focus on delivering something that the client wants to use forever.Actionable adviceFocus on profitable systems. Can your system get you new customers and keep those customers? Can it make your business profitable? On top of all that, build to sell from the start.Adam’s recommendationsIf you want more sales appointments, or you’re doing cold emails alone and not getting the responses you wish, Adam recommends checking out eocworks.com. You can book a call through his calendar directly on the website. He’ll talk with you about either his company doing this for you, helping you with your current approach, or just talking about startup sales and getting more sales opportunities.No.1 goal for the next 12 monthsAdam’s number one goal for the next 12 months is to get a 2x revenue offer for his company. On top of that, he wants to be happy, enjoy life and keep traveling the world.Parting words “Thank you, Andrew; keep up the good work. For everybody, just keep on going. Perseverance and spirit have done wonders in all ages.”Adam Rosen [spp-transcript] Connect with Adam RosenLinkedInInstagramPodcastWebsiteAndrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever Podcast

In this presentation, I will introduce you to our FVMR investment frameworkAnd will apply it to assess the attractiveness of the top five developed countries in the world: US, Japan, Germany, UK, and France.Click here to get the PDF with all charts and graphsWhat do you think: Which of the largest country’s stock markets is most attractive?What is your investment framework?Our investment strategies for ETFs and stocks come from our FVMR frameworkWe backtest and optimize the strategy for the factors that have worked best in that marketWe do all our research in-houseWe don’t rely on other people’s researchWe might, of course, get ideas from others, but we then test those ideas in our FVMR frameworkThe benefit of an investment framework is that it forces disciplineIt’s easy to be emotionally affected by market events, which can cause you to make rash and costly decisionsTo avoid this, we stick to our frameworkA robust framework means our strategy relies on data and structure rather than just a feeling or an opinionManagement is responsible for producing earningsInvestors set the price the company trades atThere are Four Elements to our FrameworkFundamentals: Strong profitability shows a company is managed well. We prefer high or rising profitability.Valuation: Shows how the market perceives the stock. We prefer good fundamentals at relatively cheap valuations.Momentum: We try to avoid “value traps” by looking for positive price and earnings momentum. At times, low momentum signals an out-of-favor opportunity.Risk: Prefer low business and price risk. Not every stock is going to fly; some just provide stable returns and strong dividends.For this study, we look at the top 5 Developed Market countries ranked by GDPUSA – US$23trnJapan – US$4.9trnGermany – US$4.2trnUK – US$3.2trnFrance – US$2.9trnEBITDA margin remains high in the US and UK at above 20%, lowest in Japan at 13%Net margin is a remarkably high 12% in the US and UK, double the global LT averageAt 7%, Japan is still double its long-term net margin of 3%At 7% Germany is nearly double its long-term average of 4%US companies have a relatively high 19% ROE, above its 16% LT averageJapan’s low 9% ROE  is partially driven by the low interest rate environmentGermany is just slightly above its 11% long-term averageEuropean companies have paid out more cash to shareholdersUS companies also return cash to shareholders through buybacks in addition to dividends, a reason this number is relatively lowShareholder yield is about equal across these marketsUS remains the most expensive market at 19x PEJapan, Germany, and France at 13xUK super cheap at 10xOn a PB basis, the US is very expensive at 3.7xUK companies are asset-heavyUS revenue/asset: 0.70xJapan: 0.69x, Germany: 0.58x, UK: 0.57x, and France: 0.52xUS companies are most expensive again with price-to-cash flow at 13xAbout 50% higher than the others, which hover between 7x and 8x price-to-cash flowSuper low US dividend yield due to expensive market and payouts coming from share buybacksThe UK market now pays a high 4.2%This shows that the market is cheap and also that inflation expectations are highConsidering ROE/PB, UK is super cheap, and the US is 2x as expensive6x PB in UK for a 16% ROEEarnings expectations collapsed in France, Germany, and UK, but have bounced backHighest expected EPS recovery in the UK2023 growth is expected to be strongest in Japan, weakest in UKOver the past 6-months Germany and France are up about 12%, UK only half that, US neg.The US market is up most over the past three years, Germany is about flat over three yearsYTD winners are Germany and FranceThings to consider about EuropeLack of tech stocks in Europe compared to the US, so when value does well European markets do wellChina reopening is positively impacting sentimentSome speculate that lower oil prices and China opening may prevent a recession in EuropeRisk is that ECB will hike more than the FedUK and Italy have the highest 10-year govt bond ratesEurope – 2.8%Germany – 2.2%UK – 3.3%France – 6%Italy – 4.0%Spain – 3.2%So many risksNuclear warEnergy spikeUS recessionSlower-than-expected China recoveryKey points and the bottom lineConsidering all four elements: Fundamentals, Valuation, Momentum, and RiskThe US is expensive, and the UK looks cheapUK looks most interesting among the top 5 stock marketsClick here to get the PDF with all charts and graphs Andrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever Podcast

BIO: Terri Spath is the founder and CIO of Zuma Wealth LLC and has earned top performance marks stewarding billions of dollars at large investment shops through the booms and busts of the past quarter-century.STORY: At the height of the Dotcom boom, Terri bought—on behalf of clients—some terrific companies because she knew how to value, assess, and analyze them. But she kept holding onto the companies when the market tanked instead of selling.LEARNING: Know when to buy and when to sell. Don’t get too attached to your favorite stocks. “If you have great self-discipline, you can figure out how to make money in your sleep.”Terri Spath Guest profileTerri Spath is the founder and CIO of Zuma Wealth LLC and has earned top performance marks stewarding billions of dollars at large investment shops through the booms and busts of the past quarter-century.A renowned expert, Terri is a regular CNBC and Bloomberg TV guest and a sought-after industry speaker. She was named a “Top 10 Inspiring Women of 2022” and shortlisted by the Women in Asset Management awards. She has earned the CFA charter, the CFP® certification, an MBA from Columbia University, and an AB from the University of Michigan.Terri started investing when her father introduced her to the concept of compound interest when she learned she could make money in her sleep.Worst investment everWhen Terri came out of Columbia Business School, she got hired by a big company on the West Coast. She had already started investing, as she had learned a lot when studying for her CFA. The philosophy of Columbia Business School is very much in line with Benjamin Graham and Warren Buffett. The philosophy is that value investing relies on picking good companies that have great moats around them and strong management, and you can buy them at a dirt-cheap price. Terri came out of Colombia, well-trained in that arena, and when she started working for the big company, she started putting those ideas to work.At the time, more and more technology and internet companies were coming out. Terri was assigned to the industry and covered all the stocks under that umbrella. She was buying conservatively, following what she had learned at Columbia about buying stuff cheap. Terri didn’t get trapped in the excitement of the new companies. She followed the philosophy she had learned.Terri bought some terrific companies on behalf of clients because she knew how to value, assess, and analyze them. Terri believed she had made good purchases.The frenzy and excitement in internet retail and technology companies pulled the market up. Then some of those companies started to collapse. This ripple effect killed the technology stocks, the NASDAQ, and the broader markets.When everything started going down, Terri decided to hang onto those stocks. She didn’t acknowledge it was time to sell. Terri’s biggest mistake was holding onto what she thought were great companies in terrible markets.Lessons learnedPay attention to the broader markets too.Have the discipline to evaluate when to buy and when to fold to avoid losing your profits.Don’t get too attached to your favorite stocks; always know when to get out.Make sure that you understand the risk.Most investors tend to be better at one side of the trade than the other, but balancing both sides will bring you more success.Have a sell strategy and apply it regularly.Andrew’s takeawaysEmploy stop losses to help you sell when the investment is not working.Don’t fight the flow of funds.Actionable adviceConsistency, consistency, consistency. Have a consistent sell discipline and stick to it. This will protect your downside and prevent you from losing unnecessarily.Terri’s recommendationsTerri has tons of information on her Zuma Wealth website on ensuring you participate in the upside of the market without losing too much.No.1 goal for the next 12 monthsTerri’s number one goal for the next 12 months is to motivate and educate people on how to invest properly.Parting words “Don’t be afraid of losing money. Stay disciplined and keep listening to this podcast so you don’t have to make the same mistakes.”Terri Spath [spp-transcript] Connect with Terri SpathLinkedInFacebookYouTubeWebsiteAndrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 PointsAndrew’s online programsValuation Master ClassThe Become a Better Investor CommunityHow to Start Building Your Wealth Investing in the Stock MarketFinance Made Ridiculously SimpleFVMR Investing: Quantamental Investing Across the WorldBecome a Great Presenter and Increase Your InfluenceTransform Your Business with Dr. Deming’s 14 PointsAchieve Your GoalsConnect with Andrew Stotz:astotz.comLinkedInFacebookInstagramTwitterYouTubeMy Worst Investment Ever Podcast