My Worst Investment Ever Podcast Andrew Stotz

Click here to get the PDF with all charts and graphs
 
Introducing emerging marketsOur FVMR frameworkFundamentals: Emerging markets are about 20% less profitableValuation: Emerging markets are about 41% cheaperAsset class and region/country allocations
Introducing emerging markets
Our FVMR framework 







 
Fundamentals: Emerging markets are about 20% less profitable



Valuation: Emerging markets are about 41% cheaper




UK: Cheap and high profitabilityGermany and Korea: Cheap and low profitabilityAustralia and US: Expensive but high profitability
Asset class and region/country allocations
This is
not
a
recommendation

My next rebalance is in early SeptemberEverything could change then

This is not a recommendationMy next rebalance is in early SeptemberEverything could change then
 
Click here to get the PDF with all charts and graphs Andrew’s booksHow to Start Building Your Wealth Investing in the Stock MarketMy Worst Investment Ever9 Valuation Mistakes and How to Avoid ThemTransform Your Business with Dr.Deming’s 14 Points
Andrew’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 Goals
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BIO: Justus Hammer is the Group CEO and Co-founder of Mad Paws. Over the past two years, he has invested in over 45 startups. He has served as an advisor and early investor in Airtasker and a founding investor and advisor to VICE Golf.
STORY: Justus developed an idea to make real estate buying easier. He wanted to expand outside of Australia when COVID hit. Justus took a pause, thinking that the market would tank further. Instead, property prices doubled in the next 18 months.
LEARNING: What works in one asset class will not necessarily work in another. The real estate market dynamics are very different in each market. Timing matters, but you can never really know whether your timing is right until after.
 
“I don’t think there is a single truth or strategy that works for everyone. Just think about it and ask yourself what you want to achieve and what the most likely scenario is for you to get there.”Justus Hammer 
Guest profileJustus Hammer is the Group CEO and Co-founder of Mad Paws. He has invested in over 45 startups over the past two years, serving as an advisor and early investor to Airtasker and a founding investor and advisor to VICE Golf. He has not only been involved in starting more than ten companies in the tech space, like Spreets and Mad Paws, but has also developed a growing interest in cash flow businesses over the past ten years.
Worst investment everJustus saw a big opportunity in the real estate space to improve and make purchasing a property easier. There’s a whole lot of angst that goes with that, and many people are very scared about the process and sometimes get it wrong. So, Justus and his company wanted to create a better way to get buyers from property A into property B.
They spent time building the idea and even had some of Australia’s biggest real estate companies backing them. In the beginning, the company was working and managed to transact around 40 properties.
But it was a tough time in Australia’s real estate market, so Justus ran into many issues. One particular issue was timing. The market was going down, so they had to buy properties, try to improve them, and sell them quickly.
They also ran into the problem of not being aggressive enough on the buying side, so they couldn’t get many properties. Still, they made money on about 60 or 70% of their properties. But they also had a couple that really killed them.
Justus believed the market would improve, so they sat through it. The market kept dropping, and they started looking for other opportunities. They began to look closer into the numbers, the unit economics, and what had been working. They realized the model was working pretty well outside Australia.
His company decided to expand into Europe, but before they did, COVID hit. COVID changed the dynamics completely. Debt facility providers pulled back and refused to give them a loan. Their real estate partners decided to figure out the situation first, believing the market value would go down. The market turned out to be the opposite, and property prices doubled in the next 18 months.
Lessons learnedWhat works in one asset class will not necessarily work in another.The real estate market dynamics are very different in the US, Europe, and Australia.You can’t have regrets in investing. You’ve got to take the good and the bad.There isn’t a single truth or strategy that works for everyone.
Andrew’s takeawaysTiming matters, but you can never really know whether your timing is right until after.Transferring a business model doesn’t

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 06: Market Efficiency and the Case of Pete Rose.
LEARNING: Don’t try to pick stocks or time the market.
 
“The evidence is very clear. The stocks retail investors buy underperform after they buy them, and the stocks they sell go on to outperform.”Larry Swedroe 
In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over the 30 years to help investors as the 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 Chapter 06: Market Efficiency and the Case of Pete Rose.
Chapter 06: Market Efficiency and the Case of Pete RoseMany people have difficulty understanding why smart investors working hard cannot gain an advantage over average investors who simply accept market returns. In this chapter, Larry uses an analogy in the world of sports betting to explain why the “collective wisdom of the market” is a difficult competitor.
The case of Pete RosePete Rose was one of the greatest players in the history of baseball, finishing his career with more hits than any other player. It seems logical that Rose would have a significant advantage over other baseball bettors.
Rose had 24 years of experience as a player and four years as a manager. In addition to having inside information on his own team, as a manager, he also studied the teams he competed against. Yet, despite these advantages, Rose lost $4,200 betting on his own team, $36,000 betting on other teams in the National League, and $7,000 betting on American League games.
This reveals that if an expert like Rose, who had access to private information, could not “beat the market,” then it’s very unlikely that ordinary individuals without similar knowledge would be able to do so.
Sports betting market efficiencyLarry shares other examples of the efficiency of sports betting markets. One such example is a study covering six NBA seasons in which Professor Raymond Sauer found that the average difference between point spreads and actual point differences was astonishingly low—less than one-quarter of one point.
In horse racing, the final odds, which reflect the judgment of all bettors, reliably predict the outcome—the favorite wins most often, the second favorite is next most likely to win, and so on. This predictability of the market further emphasizes the futility of trying to exploit mispricings and the need for a more reliable investment strategy.
Larry goes on to quote James Surowiecki, author of “The Wisdom of Crowds,” who demonstrated that as long as people are acting independently (not in...

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 05: Great Companies Do Not Make High-Return Investments.
LEARNING:  A higher PE doesn’t mean a higher expected return.
 
“A higher PE doesn’t mean a higher expected return. It may mean that you’re paying a high price for high expected growth and safety because the company is really strong.”Larry Swedroe 
In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over the 30 years or so that he’s been trying to help investors. Larry is the 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 Chapter 05: Great Companies Do Not Make High-Return Investments
Chapter 05: Great Companies Do Not Make High-Return InvestmentsIn this chapter, Larry explains why investing in great companies doesn’t guarantee high returns.
When faced with the choice of buying the stocks of “great” companies or buying the stocks of “lousy” companies, Larry says most investors would instinctively choose the former.
This is an anomaly because people think the whole idea of investing is to identify a great company and, therefore, will get great returns. But if you understand finance, that doesn’t make any sense because the first basic rule of investing is that something you know is only information; it’s not value-added information unless the market doesn’t know it. This is because that information is already embedded in the price through the trading actions of all marketplace investors.
Small companies versus large companiesAccording to Larry, if it were true that markets provide returns commensurate with the amount of risk taken, one should expect great results if they invest in a passively managed portfolio consisting of small companies, which are intuitively riskier than large companies.
Small companies don’t have the economies of scale that large companies have, making them generally less efficient. They typically have weaker balance sheets and fewer sources of capital. When there is distress in the capital markets, smaller companies are generally the first to be cut off from access to capital, increasing the risk of bankruptcy. They don’t have the depth of management that larger companies do. They generally don’t have long track records from which investors can make judgments.
The cost of trading small stocks is much greater, increasing the risk of investing in them. When one compares the performance of the asset class of small companies with that of large companies, one gets the same results produced by the great companies versus value companies comparison.
Why great earnings don’t necessarily translate into great investment returnsThe simple explanation for why great earnings don’t necessarily translate into great investment returns is that investors discount the future expected earnings of value stocks at a higher rate than...

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 04: Why Is Persistent Outperformance So Hard to Find?
LEARNING:  Focus on building a robust asset allocation plan, regularly rebalancing it, and stick with it.
 
“Investors should just build an asset allocation plan, rebalance, and stick with it. So, when there’s a bubble, take advantage of it and sell some stock high to buy those that haven’t performed.”Larry Swedroe 
In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over the 30 years or so that he’s been trying to help investors. Larry is the 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 Chapter 04: Why Is Persistent Outperformance So Hard to Find?
Chapter 04: Why Is Persistent Outperformance So Hard to Find?In this chapter, Larry explains why persistent outperformance beyond the randomly expected is so hard to find.
According to Larry, the equivalent of the Holy Grail is finding the formula that allows many investors to time the market successfully. For others, it is finding the fund manager who can exploit market mispricings by buying undervalued stocks and perhaps shorting overvalued ones. However, markets are very highly efficient. An efficient market means that the price is the best estimate investors have of the right price. They don’t know the right price until after the fact.
The efficiency of the markets and the evidence of the effects of scale on trading costs explain why persistent outperformance beyond the randomly expected is so hard to find. Thus, the search by investors for persistent outperformance is likely to prove as successful as Sir Galahad’s search for the Holy Grail.
Larry adds that the only place we find the persistence of performance (beyond that which we would randomly expect) is at the very bottom—poorly performing funds tend to repeat. And the persistence of poor performance is not due to poor stock selection. Instead, it is due to high expenses.
The efficient market hypothesisLarry says the efficient market hypothesis (EMH) explains why all investors should expect a lack of persistence. It states that it is only by random good luck that a fund can persistently outperform after the expenses of its efforts. But there is also a practical reason for the lack of persistence: Successful active management sows the seeds of its own destruction.
Just as the EMH explains why investors cannot use publicly available information to beat the market (because all investors have access to that information, and it is therefore already embedded in prices), the same is true of active managers. Investors should not expect to outperform the market by using publicly available information to...

In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. In this series, they discuss Chapter 03: Persistence of Performance: Athletes Versus Investment Managers.
LEARNING:  The nature of the competition in the investment arena is so different that conventional wisdom does not apply. What works in one paradigm does not necessarily work in another.
 
“Active managers fail with great persistence not because they’re dumb, it’s just that they have a burden of costs, which makes it very difficult for them to outperform and overcome those costs.”Larry Swedroe 
In this episode of Enrich Your Future, Andrew and Larry Swedroe discuss Larry’s new book, Enrich Your Future: The Keys to Successful Investing. The book is a collection of stories that Larry has developed over the 30 years or so that he’s been trying to help investors. Larry is the 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 Chapter 03: Persistence of Performance: Athletes Versus Investment Managers.
Chapter 03: Persistence of Performance: Athletes Versus Investment ManagersIn this chapter, Larry expounds on why we do not see the persistence of the outperformance of investment managers. He also tries to help investors understand how securities markets set prices.
Skills versus luckOne of the most strongly held beliefs is that successful people succeed not through luck but through the skill of persistence over time. So, people assume that successful active managers must also result from this skill, not just luck. Larry explains that while this may be true for athletes where competition is one-on-one, it is not the case when it comes to investing.
According to Dr. Mark Rubinstein, competition for an investment manager is not other individual investment managers but rather the market’s collective wisdom. Further, Rex Sinquefield states that just because there are some investors smarter than others, that advantage will not show up. The market is too vast and too informationally efficient. Many people fail to comprehend that in many forms of competition, such as chess, poker, or investing, the relative skill level plays the more critical role in determining outcomes, not the absolute level. The “paradox of skill” means that even as skill level rises, luck can become more crucial in determining outcomes if the level of competition also increases.
The cost of outperformanceWhen it comes to outperforming the market, Larry cautions that investment managers are not engaged in a zero-sum game. In pursuing market-beating returns, they face significantly higher expenses than passive investors. These costs, which include research expenses, other fund operating expenses, bid-offer spreads, commissions, market impact costs, and taxes, can pose significant financial risks. Investors must be aware of these potential pitfalls and factor them