Ep298: Robert Ramos – There Is More to a Good Stock Than Just Numbers

Andrew Stotz 00:02
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning. In our community we know that winning investing you must take risk but to win big, you've got to reduce it. This episode is sponsored by a Stotz Academy which offers online courses that help investors, aspiring professionals, business leaders, and even beginners to improve the finances of their lives and their businesses. Go to my worst investment ever.com right now to claim your discount on the course that excites you the most fellow risk takers. This is your worst podcast host Andrew Stotz, and I'm here with featured guests. Mr. Dr. Robert Ramos. Robert, are you ready to rock?

Robert Ramos 00:45
I'm ready to rock. Now,

Andrew Stotz 00:48
I want to introduce you to the audience. So listen up, folks. Dr. Robert Ramos completed his undergraduate degree from Ateneo de Manila University. He finished one master's degree in business management from the Asian Institute of Management, and a second master's degree in Business Economics from the University of Asia and the Pacific. And to top that off, he completed his doctoral degree from De La Salle University. Robert has more than 20 years of banking and finance experience working for both Philippine and foreign institutions. He has experience in the fields of trust and asset management, product development, Treasury funding, fund management, marketing and relationship management. And with all that experience, you may be saying, well, geez, Andrew, does he really have a worst investment ever? We're gonna get to that. He is currently first Senior Vice President and grouphead, our CBC trust and investment group. And Robert is a CFA charter holder. ca is a charter holder, a CI pm certificate, and the current president of the CFA Society of the Philippines, Robert, take a moment and filling further tidbits about your life.

Robert Ramos 02:00
Well, it's interesting, this is a good part of my life. Right now there's a typhoon in the Philippines. And there are floodwaters rising all around us. So far, so good. A lot of a lot of people here in my village are quite worried. But we're hoping that things a bit so that this is an interesting point of time in my life. And I'm glad that I'm here during this time.

Andrew Stotz 02:21
Well, we appreciate you taking the time to share even though you're facing some real challenges. I know the feeling living in Thailand, we definitely have had our share of floods, and just the other day, we were driving home and we couldn't tell whether our car was floating or driving.

Robert Ramos 02:37
I know the feeling well.

Andrew Stotz 02:39
Now it's time to share your worst investment ever. And since no one ever goes into their worst investment thinking it will be tell us a bit about the circumstances leading up to it. And then tell us your story.

Robert Ramos 02:49
Oh, okay, this is a good one. It's just about 2013 2014. I was just recently promoted as group and other bank asset management firm. So I was head of investments for a while and also had the business development for a while. So this was a relatively new role for me. But I think I was able to do the job. And there was some confidence in you that I shall pass audits, the business has been growing. And our funds have been actually doing well. So I think that was a good thing. We prided ourselves on being able to select undervalued, quote, unquote, undervalued investments. And I think that's where the story starts. So we choose firms that have a good story, chose spring this that have a big upside. And for the past seven years, it hasn't worked very well, immensely, well, to the point that a lot of the funds that we manage, were in the upper tier. So of course, being a senior post, I was not involved in the day to day management anymore. I was more involved in the strategic level. And as I was taught by my predecessors, you know, it's all about valuation, valuation valuation, it's all about them. So, the story goes, I find this stuff, you know, one of my best analysts brings it to me, and best fund manager brings it to me also, and he says, this a very nice investment. It's in the power industry. It's quite undervalued, you know, the low double digit piece. growth potential is fantastic. And you're in the Philippines consumption is increasing. Definitely consumption for power is increasing as well. So you think back, push back your chair and look at the numbers. Wow, this firm has the best of the best. Not only do they have great numbers, you know, and great potential management is no joke. These guys have a fantastic track. They're brilliant, and I know I know them. Well. Let me correct them. I know some of them personally. So I thought highly of this fun, fair. Yeah. So here I go, saying, Okay, let's, let's take a piece of the pie. And maybe you know what, considering we've done this before we have in the Philippines, we have a 15% maximum limit for a fine, you can't invest more than 50% for particular security. So that didn't sound serves as a way that we can balance its chances for getting too much into a particular stock. So okay, say okay, 15%, that's, that's fine. It's worked for us so many times before, it's chemical safe. So maybe if we should go in, maybe we should, up beyond it. You know, because everything looks good. And up until now, everything that we've done worked. Okay, it may not have solved it. We're over what he expected. Some of what we've done in the past may not have performed up to par, but it's still performed well. Okay. And remember, this was post global financial crisis. So everything was on the up and up. So that being said, and a lot of the stocks have been performing very well, a couple of my team were talking, they were saying, you know, what, they usually 10% maybe too small for this particular stuff. You know how it is? You look at the numbers, and people are saying, okay, maybe we can go down? Maybe we can go 13. And everybody said, Okay, 13 14% we can probably go that much.

Andrew Stotz 06:33
And we can just trim down that position as it just rides

Robert Ramos 06:36
up. Yes, exactly. The mindset, exactly the mindset, as long as it's never 15%. You know, as it reaches 15, we sell. That's how we were thinking we were saying, it's 15, we cut it because it decided to cut it. And then but we're probably going to keep a core position considering valuations. That's, that's the mindset. So we buy it, wait a couple of days, all good. Things haven't been ramping up as much because expected value play, we're considering stocks do Bobby work their way up in the next 3456 months or years. So that being said, Maybe 345 months, everything's not moving as much in under six months, start snipping dipping, initially, not so much that it would cause the timing, but enough for me to take notice. And of course, since you went, you invested already, for saying okay, the numbers will actually save it, the numbers will actually be able to save the stock once people see the value. And once we are able to unlock value people dislike buying. So that happens. On the seventh on the eighth month, starting the stock starts to be more and more, more and more that I started to notice. People managing the funds are starting to notice. Now the ninth month, clients are starting to call because this fund that was doing so well for them suddenly is not doing so well anymore. And if you look at it, if you analyze what's what's been the fun done, because everything was kind of doing okay. It was that particular stop bringing the fun down. So months, rolls into here. And we realized that this was not healthy, they stopped that we thought that would outperform is suddenly becoming, you know, not the star that we find that the dog that we see it was. So slowly and painfully we had to sell that position. So we painfully we had to unload. And of course, the fun of the big hit fund that was before me solo for the past four or five years, you know, the upper tier suddenly was a big big player or even below the 50th percentile. It did not only impact us from that, from that sense, because you know, we had to dump a lot of clients. These clients were so used to you performing so well that they took it for granted that outside the global financial crisis, you would probably make five to 8% easily. And now you are probably making one or 2% and sometimes I'm done consumers 3%. So that was the worst investment ever. For me, I had to sell it quickly. And not only that I had to manage a lot of client complaints. What's the lesson? Yes, tell us what's the lesson. The numbers are good. Management is good all these but sometimes my friends, the numbers will lie to you because you enter into this way of thinking that this is a stamp that will actually provide value. But sometimes you forget, you forget aspects such as, how liquid is this stock? How do people how many people covered the stock, how many analysts covering the stock? How many people look at the stock on a daily basis, we thought it would be the reverse once we started investing it, there would be some more interest than it was to a certain extent. But it did not entice the local investing public to buy into it. Maybe, maybe, if this was not a public fund that was valued on a daily basis, if it was not a fund that had now who's on the website that indicated the price per share day and how it moved up and down, maybe if it was valued maybe every three months or every year, it would have been a good investment. But considering that it was a daily investment, it was a daily valuation. Yes. It's something that we should have thought much more.

Andrew Stotz 11:11
That's, that's a lot of curiosity. If you look at that, now, looking back over time, did it eventually come up, or did it just keep going down?

Robert Ramos 11:21
took years, definitely years, I think it was a bit, I look back three years after that. Buying, the stock started picking up. So it really took a while and it took a lot, it took more courage, a lot more energy starting, started covering it from the zero or one that covered it before you moved up to maybe about five or six. So usually, if I would talk about, you know, stocks in the Philippines, not real, a lot of the stories would be, you know, there was something wrong with the firm or something that was not disclosed. But for this particular instance, the stock was actually pretty good. It was actually good, it was just about maybe buying it at the right time, and knowing when to go all in.

Andrew Stotz 12:11
Alright, so let me summarize what I took away from this story, there's a few things I was writing down. One point that an interesting point, and I'm sure you practice it, in most of your, you know, most of the time, it's just that, you know, it's emotion that gets you excited, is building a position slowly, over time. And the benefit of that is that sometimes the research that we do on things is different. When we own it, and we just own a little bit, then whether we don't own it at all, and we get all excited about it, or we own a lot of it, then we become biased. But when you say, ah, let's just take a 1%. You know, that's that's put 1% of our portfolio into that for right now and see what happens. It just one risk management tool that has to do with what I would call, you know, managing risk. The second thing, and I think that it's ultimately it's emotion that causes you to break that rule, because you get excited about this is a good story. We all like it, there's so many good things lined up, you know, we want to get in now before this thing flies. So it's that you know, that emotion. So that's my first takeaway. The second one is the idea of a stop loss. And in my career as a sell side analysts always talking to fund managers, you would never talk to somebody about a stop loss. It just doesn't make sense. I mean, I'm doing all this research to find a fundamentally strong company, why would I ever sell it if it went down. But one of the things is I've gotten older, and in my own investing, I basically have come to the conclusion that sometimes you got the right stock, you got the right story, you just bought it at the wrong time. And a stop loss can sometimes force now in the case of a fund management company that has a long term objective and all that it's a little bit hard to implement a stoploss. But you could say that we implement a stop loss that we sell 10% of our position, if it goes down by more than, you know, 15% of what we purchased it at on a rolling basis, let's say, you know, we'll look at it on three month basis and say where is the price relative, you know, to where we bought it. So that's the second thing is, you know, stop loss does have some value, and you can use it in a limited way. And then the third thing is liquidity risk. And that is you know, when a stock is small and illiquid, and it's not many people covering it, you may think that it's a great story. In fact, I'm just working on some research for a client of mine was just about to submit a very, very illiquid company to him. Now, he has a 10 year time horizon, and he's investing for a family office. So he doesn't mind the liquidity but when you're talking about someone that really needs that liquidity, then liquidity is a major risk factor. So those are three things I took away anything that you'd add.

Robert Ramos 14:58
I would totally agree It's about stop losses. That's one thing or, in my terminology management action triggers, goes beyond a certain point, you probably want to say, whoops, maybe this value, this, this value play is actually a value trap. If that's one thing that I'd like to say, um, I think the bottom line, you're right you, we have as fund managers, you have to understand that this position, and selling that position does not represent a failure, you have to be able to separate yourself and your actions to be able to move accordingly. Because if you fall in love with your position, then you fall into the trap of throwing in that good money after bad and making a problem even worse than it is.

Andrew Stotz 15:45
So this is a great lesson for the listeners. And you know, Robert is obviously a highly experienced person in this area. And what you can hear from him his this willingness to accept that, hey, this didn't work out the way that we thought we've made it, you know, we need to rethink this. And then we need to exit that position. And I want to challenge all of the listeners. And one way to do this is to think about the concept of Zero Based Thinking. And the idea is that, you know, start today. And, you know, imagine that you're a fund manager, or you're managing a team of fund managers, or you're just managing your own portfolio. And if I had a team of fund managers, I'd bring them all into the room today. And I go, Oh, good news. And they'd say, what, last night, I sold all of your positions, every one of you is holding 100% cash. Now, what do you want to do with your money? And this concept of Zero Based Thinking to imagine that you do not own it now, would you buy it now is one of the best ways to try to strip yourself from the emotional attachment, like, like Robert has said, falling in love with our investments. So, you know, very important lesson for all of us. All right, so based upon what you learned from this story, and what you continue to learn, what one action would you recommend our listeners take to avoid suffering this exact same situation, the next time it comes up?

Robert Ramos 17:06
Well, I still think that people should look at the numbers that will never change. Look at management, that's also very important to look at size, look at liquidity, which is important in markets such as ours, where, you know, there's not much liquidity, especially for some stocks, look also at the number of people whose work covering that particular stock, because it's also an indicator how much how much people are buying into it or selling it. But I think probably the most important is being able to act fast. And being able to admit, you know, I made a mistake. I need to protect my clients, move quickly. I think that's one lesson that I learned then. Maybe that my final lesson is what's worked so well for you for the past few years. know, the thing that made you a star may not work in the next few years. So be ready to adapt, be ready to change how you manage that, not only from a fun management standpoint, also from a people management standpoint,

Andrew Stotz 18:15
great, great lessons. In fact, one of the things I look at is stop loss. I test stop losses around Asia in different markets, because I realize different markets have different characteristics. And stop loss worked in every market for many, many years, except the Philippine It was a market that just kept going up and stoploss would have just lost your money. But you know, things change. And so you know, keep keep thinking about what you're doing. All right. Last question, what's your number one goal for the next 12 months?

Robert Ramos 18:43
number one goal? Well grow the grow the business of the asset management firm where I work for right now. That's rcbc have performance funds, serve the needs of my clients? Beautiful.

Andrew Stotz 19:00
All right, listeners, there you have it another story of loss to keep you winning. Remember to go to my worst investment ever.com to claim your discount on the course that excites you the most. As we conclude, Robert, I want to thank you for coming on the show. We've been trying to get this to work since I remember asking you about it when I was there in the Philippines during your last charter recognition about a year or so ago. So I'm glad to have you on the show. And on behalf of a Stotz Academy, I hereby award you alumni status for turning your worst investment ever into your best teaching moment. Do you have any parting words for the audience?

Robert Ramos 19:40
Oh, keep learning. I think that's, that's one thing I can share with you. keep evolving. The world is evolving. And if you don't you die.

Andrew Stotz 19:53
And you are a shining example of that through all of your education and the work that you do. I know through CFA As I was president of CFA society here, and it's been a pleasure to watch you and your predecessors who have been fantastic with CFA society in the Philippines, so congratulations. And that's a wrap on another great story to help us create, grow and protect our well fellow risk takers. This is your worst podcast host Andrew Stotz saying I'll see you on the upside.