Ep302: Ric Franzi – Always Invest in Appreciating Assets

Listen on

Apple | Google | Stitcher | Spotify | YouTube | Other

Guest profile

Born and bred in a small coal mining and steel mill town in Western Pennsylvania, Ric Franzi moved to California after graduating with a B.A. in Communications from the University of Pittsburgh. While in Southern California, he continued his education by attaining his MBA from Pepperdine University.

Ric is the host of the Critical Mass Radio Show & Podcast and an author of three books and frequently speaks to CEOs and business owners. He has been featured on Forbes, INC, CNBC, and many others.

 

“When you emotionally want something, it is amazing how you can mentally rationalize that it makes sense.”

Ric Franzi

 

Worst investment ever

Ric and his wife had family friends whom they had known for a very long time. The friends had a son, Henry, who was one of two co-founders of the company Broadcom. The company is a very well recognized chip manufacturer. The couple has known Henry forever, and they trusted him. Henry had started other successful businesses, and so they knew him to be a successful entrepreneur.

Getting the first chance to invest in their friend’s startup company

Ric and his wife got a chance to buy shares into Broadcom at a family and friends rate.

Being the cautious investor he is, Ric called his broker and talked to him about the idea of investing in Broadcom.

The broker told him that he did not have to but that the shares were three times higher than the price he could buy them. With that advice, he made up his mind to purchase the shares.

Selling their shares to build a pool

Broadcom was doing well, and so Ric was quite delighted with the decision they had made. After a while, the couple decided to build a pool and do some modernization to their house.

Since the couple had made enough money on the Broadcom stock, they decided to sell it and use that money to finance the project rather than getting a second mortgage. So they took the gains off the table and spent it on something that they wanted.

The couple spent tons of time in that pool with their growing children and made lots of family memories.

Leaving money on the table

While building a pool and improving their house was a fantastic personal decision, selling their stock too early saw the couple lose a lot of money. The Broadcom shares continued to appreciate.

Ric was pained to realize that they had made a very foolish financial decision by selling an appreciating asset to get a depreciating one.

Lessons learned

Do not sell an appreciating asset to buy a depreciating one

Do not buy depreciating assets, especially if you have to sell an appreciating asset. It never works out well. Also, do not overbuy depreciating assets.

Seek the assistance of a financial advisor whenever you need to sell your investments

If you have an urgent need for cash and the only way to raise it is to sell your investments, then consult a financial advisor and figure out how to minimize the drain on your finances. Do not let emotions take control of your decisions.

Have someone who can offer you uncompromised advice

Have someone trusted who will advise and reason with you without any emotions involved whenever you want to make financial and investment decisions.

Andrew’s takeaways

People miss opportunities every day. So do not beat yourself up

It is painful to look back at the opportunities that we miss. The best way to deal with the emotion of that is to remember that everyone has missed many other opportunities.

Test things out with a small position

When you encounter a stock whose price goes up or down, take a small amount of that stock and sell it or buy it depending on the price’s direction.

Actionable advice

Solicit outside advice from people who have no vested interest in the decision you are going to make. Then take seriously the recommendation that you get. Remember to submerge your ego and your emotion and realize these people have your best interests at heart. They may be smarter than you, so follow that advice as much as you may not want to hear it.

No. 1 goal for the next 12 months

Ric’s number one goal for the next 12 months is to leverage digital-first strategies to drive his top of the funnel activities and grow his community.

Parting words

 

“Stay healthy.”

Ric Franzi

 

Read full transcript

Andrew Stotz 00:04
Hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning. In our community we know that to win in 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 turns you on the most fellow risk takers. This is your worst podcast host Andrew Stotz, and I'm here with featured guest, Rick franzi. Rick, are you ready to rock?

00:48
I'm ready, Andrew.

Andrew Stotz 00:50
I am excited to bring you to the audience. And for the audience out there. All you got to do is go into LinkedIn type in Richard franzi. And you'll be able to see him doing some of his LinkedIn lives which I just watched one of them and it's a very cool. Now, Rick was born and bred in a small coal mining and steel mill town in western Pennsylvania. Rick moved to California after graduating with a BA in communications from the University of Pittsburgh. While in Southern California, he continued his education by attending his MBA from Pepperdine University. Rick is the host of the critical mass radio show and podcasts, and an author of three books. And he speaks frequently to CEOs and business owners. He's been featured on forbes.com C, I inc.com cnbc.com. and many others, Rick, take a minute and filming for the tidbits about your life.

Ric Franzi 01:52
Today, I am an executive coach in Southern California, I build mastermind groups for business owners, I create an advisory board for them many, they're mostly privately held companies, middle market businesses growing, and I bring them outside perspective and understanding from a group of peers who are running non competitive businesses. That's my core business that I do as well as I executive coach CEOs and business owners here in Southern California.

Andrew Stotz 02:18
Yeah, and for the listeners out there, there's much more to Rick's bio, including this idea that he is the CEO of pure groups and what he's doing there. And I'm personally I'm very fascinated with that. You know, one thing that big companies have is they have boards of directors. And one thing that small company doesn't really make sense, sometimes for a medium sized company to have a big, powerful board of directors. And also, one thing that's changed a lot here in Thailand, and I think it's around the world is the liability for directors is very high. And getting advisors, on the other hand, seems like a really smart thing to do. Now, I want to ask you a specific question. For my coffee business coffee works. We've been in business now for 25 years. We've never set up a board of advisors. We've talked about it many, many times. And if we came to sit down with you and said, you know, we know that you're an expert in this area, what would you say? How would you guide us or the listeners out there that do have, you know, businesses that are thinking about this?

Ric Franzi 03:28
Well, there's a couple different ways to go with that. Andrew, as an executive coach, it's really understanding what your goals are and what you've been able to accomplish, and try to understand the gaps that you both have, you know, to great people running a successful business for 25 years, you've obviously figured out a lot of it. But what I found sometimes is what Marshall Goldsmith said, What got you here won't get you there. And so, you know, you always have to be reinventing. If you are open to an advisor. There's a good friend of mine, I'm in a global organization by the name of Renaissance executive forums, we have 2000 CEOs around the world that come into these input what were in person groups before COVID are now virtualized, but we'll be back in person once we get this under control. But the guy that does what I do business partner in Northern California, ran Java city, He's, uh, he's steeped in the coffee industry, that would be an individual that I would introduce you to is maybe someone who you could bounce ideas off of, because he's highly familiar and been involved in your industry for a lot of his professional career.

Andrew Stotz 04:31
You know, I was thinking about me the other question I was going to ask you and I decided that maybe I should ask myself, and that is why don't you know, let's say medium sized businesses, build advisory boards. And I think if I was to answer that question, I'd say, kind of nervous to ask somebody to beyond that. You know, feel like we don't want to reveal our weaknesses as a company and we Want to wait until everything is, you know, together and have a better, you know, positioning that we can present to them? And maybe it's going to cost a lot of money? And is it really worth it? And we're already so busy. I mean, I'm like thinking about all the reasons why we've come up with reasons not to do it. I'm just curious, from your experience. Why is it that people don't do it? And why should they do it?

Ric Franzi 05:25
Let me answer the first question or the second question. First. It's time to work on your business versus in your business. It's sharpening the saw. And it's amazing to me how much business is common 70 80% of what a business is about can be transferred to other successful entrepreneurs, they pick it up pretty quickly. So there's a lot of, I had a similar experience, even though I'm not in the coffee industry. And this is what happened to me, I think we can learn best vicariously through the experiences of others, you know, experiences a great teacher, but you're better off as an entrepreneur hearing about a failed experiment,

05:59
just like you're

Ric Franzi 06:01
right, we learn a lot from other people's mistakes. But then we also learn from what they did well, and it kind of narrows down, there's so many decisions, I ran a manufacturing company, it was a wholly owned subsidiary, I was there for seven years, was the ideal job that I always wanted in the corporate world. And even though it was 50 $60 million in revenue, we had a pretty good, you know, employee population, there were many times where I felt like, I wish I had a little more information and eyesight on what I'm having to decide. So what we bring in these confidential non competitive settings, is an opportunity to speak freely about your business. Many times entrepreneurs that I meet business owners, they feel like they have this advisory board. It's the three other guys they golf with, on Fridays, it's a brother in law who's running another business. And so they're feeling like they're getting the outside feedback. But my first book that I wrote three, on my first book was about why people join groups like this. And I called it critical mass that 10 explosive powers of CEO peer groups, because when I was in the manufacturing company, as the President, I joined a manufacturing peer group, so that I could learn from the other business leaders what they were doing, because manufacturing is a very challenging business model. So it really requires an open mind from the entrepreneur, to try something and see if they can get value. And what they end up doing is they give value as well. And they usually get more value than they give, but it is kind of a contact sport, pure hoops. You got to be on the field, huh?

Andrew Stotz 07:31
Well, I really appreciate the discussion, and you inspire me. And after this podcast, I'm going to kind of get and get in touch with Dale. And he and I will talk about it a little bit and then think about how we can take it from what you've talked about. Now. Let me just ask you if my last question related to this is for the audience out there who's listening, and they think Can I need this? What's the best way that they should contact you or find out more about what you're doing?

Ric Franzi 08:02
Well, you set it in the open LinkedIn is my preferred, I'm Richard franzi. ric franzi. Ric, you'll find me either way, fra NCI that's a that's a great way to send a message, make a connection. The global organization I'm a part of is Renaissance executive forums, their executive forums fo Ru, Ms. Calm, you can go to that website, you can fill out a form, we have business partners, such as myself around the globe. But also now we virtualized the experience. So even if you're in a market where we don't have someone today, we can vicariously, you know, get you in there virtually through the zoom connections that were fearful.

Andrew Stotz 08:39
And now have all that in the show notes, ladies and gentlemen. So just go there. And then you can click in and get there. All right, well, now it's time to show you worst investment ever. And since no one ever, ever, 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. Well,

Ric Franzi 09:02
this is the worst investment in the sense that it wasn't a bad decision to get into the stock. And you probably have had other guests it's timing in and so the situation is my wife and I have family friends on from her side. Long time family friend's parents emigrated from Europe after world war two together and ended up in Buffalo, New York. And then eventually one set of couples came to Southern California and they started vacationing and drawing people out and before you know what that whole cohort that relocated from Europe, Central Europe, Poland, etc, into Buffalo, and up in Los Angeles, California. And one of the couples had a family. They all had families, but they had a son by the name of Henry Samueli. And he was one of the two co founders of the company Broadcom, which is a very well recognized chip manufacturer global footprint. And we've known him forever. We were, you know, he came to our wedding, we were at his child's christening. I mean, they were not family. But because many of these people didn't have much family left after World War Two, they really became a close knit community together. And so they were like cousins to my wife, and to her, her sister, and brother, and so very close. And Henry had started other successful businesses. And you just knew that Henry was a successful entrepreneur, and that his other partner, Henry, that this Broadcom thing was going to be successful. And so we were offered the opportunity to get Finn friends and family shares.

Andrew Stotz 10:42
How inside,

Ric Franzi 10:43
right, and a reasonable amount of friendly friends and family shares. And we had been burned a couple times before with this idea. And even though we had high confidence in Henry, I remember the day vividly. And this isn't even the worst decision. I'm coming to that if I called the broker to see if I wanted to exercise the friends and family option. And he's like, well, you don't have to, but I can tell you right now, it's three times higher than the price that you could buy it for. I'm like, Okay, then we're definitely we're in on this one. And so we're very happy. And we had, we were in that community, and there were a lot of friends and family who were able to buy into Broadcom. And we were very delighted with it. But we got as well, you know, Andrew, you probably coach and console, your clients, you know, technologies can be volatile. And my wife and I decided we were going to put in a pool and do some modernization to our house. And so we made a decision that we had made enough money on the Broadcom stock, that we would sell it and use that money to finance rather than getting a second mortgage or whatever else would just take the win gains off the table and spend it on something that we wanted. And we did. And we spent tons of time in that pool with our growing children, it became a center of I mean, it was just for this, we're in Southern California. So we could use a lot of the months of the year, it doesn't rain much. So it was a fantastic personal decision. But the uncalculated money that we left on the table by selling too early, a stock that continued to split, and then they were purchased. And the pain of it came one from the realization that we made a very foolish financial decision, we took an appreciating asset and we bought a depreciating asset, we should have probably finance that are not done it at all, we couldn't really afford it at the time, through our cash flow. But the hardest thing for me was being around the community of friends and family. Because they found out that we had done that. And I could remember sitting at one of these barbecues at the at their house, and one of the cousins, quote unquote, from the other side came up to me and really basically laughed at me for you sold this Broadcom stock to put in a pool, how what he was saying without saying it is how stupid are you? And he was right. You know, I didn't like hearing it. But he was actually very correct.

Andrew Stotz 13:18
And you said, Come on over for a swim. I'm gonna drown you. Oh, my God. I

Ric Franzi 13:26
mean, like the village idiot, frankly,

Andrew Stotz 13:28
I'm the I mean, I appreciate the openness about the feelings about it. Because you know, so we certainly have missed millions times more than we have hit. In fact, in our lives every day, we're missing opportunities. But why don't we go through the lessons that you learn from this experience?

Ric Franzi 13:52
Well, I think I gave you one of them don't sell an appreciating asset to buy a depreciating asset. I mean, I've seen so many people in my life who have done that, who think of material asset has something more than an intangible piece of paper stock. And they make the mistake of losing the future opportunities that we did losing the future gain that was inherent in that company and betting on those executives. I knew them well. I had high confidence in their ability. If I could go back in time and sit down with my wife and myself and say, Are you out of your mind. So I share that with my kids all the time. Don't buy depreciating assets, especially if you have to sell an appreciating asset. It doesn't it's not the right thing to do and don't overbuy depreciating assets. The second one is if you really have to if you want if your wanted glands are going so bad and the only place that you can find cash to make a purchase is in your investments. Then sit with your financial advisor and figure out how to minimize the drain on your finances to support your desires, and to really take the emotion, the ego, whatever, because people could see that I had a pool, they couldn't see that I had the Broadcom stock, right? And so really divorce yourself, it's really hard. Because when you emotionally want something, it is amazing how you can mentally rationalize that it makes sense. And only many times with the hindsight that with the perspective of hindsight and age, can you look back and go,

Andrew Stotz 15:27
what are you doing? Yeah, in fact, I thought that the second worst investment was going to be when you said, I'm never gonna do that again. And when a friends and family round came around with someone else, you took it, and you lost all your money. And that brings me into, you know, some of the ideas that I took away from your story. The first thing is that nothing in the world of investing can be seen, you know, kept, we cannot see the future. And that's why we say hindsight, is 2020. And I always say that, you know, we made our decisions at the time with the information and the knowledge that we had at the time. So sometimes it's really tough when we go back and look at it, you know, but and what, when you say that you've already had some bad experiences, it's only natural to be cautious. And the fact is, is that I wish as a financial, you know, expert, I wish I could say, well, here's the rule that you should apply in this case. But that's the beauty of Finance. They're the only rule, unlike physics, which has the law of gravity, the only law in the world of finance is that there is no law in the world of finance. So just trying to take a specific example and apply that as a general rule can be very difficult. Now, the second thing is the idea of, you know, Warren Buffett has been quoted as saying that my favorite time horizon is to hold something forever. Now, I think this is an important one to think about. Because, you know, when he's talking about that, it's a little bit different than what the typical person is doing. What I always say is that if you buy an individual stock, and most people buy too few, if you're going to buy a portfolio, some academic research I did said, basically, in Asia, you should own 10. And I think that's probably a good number. No more, no less, if you want to be a stock picker, own 10. The reason why is because that gets you almost all the benefits of diversification, but still gives you an opportunity to outperform. But the truth is, is that who can actually have the time to build a portfolio of 10 stocks, so most people just buy one or two. And the rule of holding something forever, does not apply with an individual stock, it can apply because there's just too many competitive forces. So ultimately, when I think about buying a stock, and holding it forever, I think about buying, let's say, an index fund, and holding it forever, that's a much more realistic or practical piece of advice. For an investor, you know, a typical investor. And in this case, the advice of all you should just held it forever, that may not have been advice, good advice, because everything eventually crashes. Now, also, I would say, the other thing to recall is that every day we are missing opportunities. Every day yesterday, there's a list of 20 stocks that went up 50% in a day, and you missed it. And every day, there's opportunities coming in front of us. And it's really painful. When we look at the opportunities that we miss, because we were in it, we were involved in it, and then we missed it. But the reality is, is that the best way to deal with the emotion of that is to say, but those guys that hit this one missed a lot of others. So just remember that we're always missing opportunities. And that's another one according to Warren Buffett's. He's basically saying that, you know, it's investing is like baseball, you can go up, and if the pitch is not in your sweet spot, don't swing. But in baseball, you will eventually, you know, lose your chance at bad, but not in investing. So just wait. Okay, so and then the other thing that I would say is when emotion takes you over about a stock that's going up or down or something like that, it's also very, one thing that you can do is take a small amount of that stock and sell it or buy it depending on you know, what direction of the price, and that tiny little action gives you some satisfaction. So if you say God has gone up so much, we're going to take 5% of the position and sell it and go enjoy. And so those are some of the things I take away anything you'd add to that.

Ric Franzi 19:56
Well, yeah, and that was at the time that I manage our own our investment portfolio. That if there's a silver lining to that story is that we realized through that, that we shouldn't be trusted to make our own decisions. And so we found a financial advisor who we were, frankly, we weren't even thinking truthfully about hiring him, we went there because it was they were offering some type of a free dinner or something if you spend an hour with the guy. And so we went, and we met with them. And I was like, we're not going to do this, but we're going to have a free dinner out of it. So we do an hour, you know, we're the kind of people that go to the US to go to the seminars where you maybe buy a timeshare to get the TV or whatever we do all that stuff. My family loved that. Yeah, whatever it took, you know, anyway, we ended up really bonding with him. And we've been with this gentleman now. 15 years. And I know for a fact, if he would have been in our life back in those days, I probably we would have probably had a see the wisdom of not selling all the Broadcom stock. And so sometimes having somebody who is outside of the emotion, who can talk to both of us, and reason with both of us, because I can't imagine that the work that you're doing, you know, when you're dealing with people in their money, that this is, um, this is an emotionally charged experience, I would think.

Andrew Stotz 21:25
And Alright, 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 the same fate and go back to that moment, that moment in time when you had your choice. And think about a young person or a person facing that choice right now?

Ric Franzi 21:46
Well, you know, it ties perfectly to what I do for a living with CEOs and business executives, which is get solicit outside advice from people who have no vested interest in the decision that you're going to make. And then take seriously the recommendation that you get, if you ask enough people that you respect their opinions, and there is a consensus, then you should probably submerge your ego and your emotion and realize they have your best interests at heart. And in this moment, they may be smarter than you and follow that advice as much as you may not want to hear it.

Andrew Stotz 22:22
I think that's golden advice, you know, for life in general, the idea of asking another person, a third party, and making sure that they're not interested in the disinterested, they're not involved in it. You know, I mean, and then and then you said, you know, if there's a consensus, or it doesn't even have to be a consensus, just ask and listen, and you'll get a lot of great information. So I think that that is super valuable, actionable advice. All right. Last question. What's your number one goal for the next 12 months?

Ric Franzi 22:55
Well, I don't know about you. But our business here in North America has been impacted by COVID. I'm a solopreneur. I have an LLC, I'm running my own company. I have contractors who work with me. But at the end of the day, I'm the Rainmaker I build the business, I create the brand. And I have been looking and working on ways to to a digital footprint to make up for what I can't do any more in person. And it pretty much looks like to me that we're going to be at least here in North America, living with the effects of COVID for at least another three, if not six months, before it gets back under control here. So really leveraging these digital strategies that I have had to use. mk Necessity is the mother of invention, thank you, playdough to drive my top of the funnel activities and to grow my community, because what I know, because I've been around, I was here in a great recession of 2007 2008, doing what I do now. And that was a very good time for me on the other side of that recession, where business owners recognize, hey, maybe I need some help on this. And so I see that happening in 2021. I want to catch that wave through a digital first strategy in my business.

Andrew Stotz 24:08
Beautiful. 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, Rick, I want to thank you again for coming 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?

Ric Franzi 24:36
Stay healthy, my friends. Amen. Well,

Andrew Stotz 24:39
that's a wrap on another great story to help us create, grow and protect our wealth. Fellow risk takers. This is your worst podcast hosts Andrew Stotz saying I'll see you on the upside.

 

Connect with Ric Franzi

Andrew’s books

Andrew’s online programs

Connect with Andrew Stotz:

About the author, Andrew

Dr. Andrew Stotz, CFA is the CEO of A. Stotz Investment Research, a company that provides institutional and high net worth investors with ready-to-invest stock portfolios that aim to beat the benchmark through superior stock selection.

Leave a Comment