Ep322: James Leong – Learn How to Read Financial Reports to Pick Stocks

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 the winning investing you must take risk but to win big, you've got to reduce it. This episode is sponsored by a stocks Academy's online course how to start building your wealth investing in the stock market. I wrote this course for those who want to go from feeling frustrated, intimidated or even overwhelmed by the stock market to become confident and in control of their financial future. Go to my worst investment ever.com slash deals to claim your discount. Now. Fellow risk takers This is your worst podcast host Andrew Stotz and I'm here with featured guests. James Leon. James, are you ready to rock?

00:47
Absolutely, Andrew.

Andrew Stotz 00:48
I'm excited to introduce you to the audience. And for those listening. You know, I've just got to know James briefly. And he was recommended by one of my prior guests, Avi. And I really am excited to bring you on the show because you and I have a similar vision a similar we take pleasure in the similar thing. So listen up audience James Dion is the founder of visions one consulting, a training consultancy that teaches finance to non financial people. Using his unique financial storytelling approach, James is able to simplify a complex and dry topic to make learning joyful, and fun. James has helped 1000s of university students and non financially trained people grasp finance and accounting easily empowering them to make better decisions. I love that because that's the whole point of learning finances to make better decisions. The Singapore Business Review has featured James is one of 10 influential professional speakers in Singapore. James is also funny, also a certified speaking professional of recognition earned by the top 12% of professional speakers worldwide. James, can you take a minute and fill in further tidbits about your life? Sure. Thank

James Leong 02:12
you, Andrew. So well, I started with accountancy really, when the School of Accountancy would pick a big four audit firm, we finance teams. And over time, I realized something I have worked in accounting, I have done consulting, but the thing that gives me the greatest happiness is actually teaching. And so I trained my team a lot when I was in the finance department upskilling them. And when the opportunity came along and decided to start on my own and not embark on my own entrepreneurial journey. And I decided that what I want to be doing for literally the rest of my life is to help people learn finance, the easy way. So leveraging on my knowledge and my experience, plus my passion in teaching and sharing. So a little bit of a tidbit in what I do other than in accountancy, I'm also a Toastmasters so. And that helped a lot in terms of helping me to be able to communicate my ideas more skillfully, and also to be able to impart ideas across clearly to help as many people as I can to understand that very difficult subject.

Andrew Stotz 03:27
Yeah, for the listeners out there, I think there's some really great takeaways just right from that. And that is the first thing is that when James said, you know, he said it offline when we first talked, and I could just see the sunshine coming from it. And when he said it now, it's just that it's just like he's found the woman of his dreams, in the sense that, he said, you know, that he just has this passion for teaching finance, and it makes him happy. And he wants to do that, the rest of his life. And I want to challenge the listeners out there. I want to challenge everybody to take a lesson from James, you know, I mean, it's a lesson I took a long time ago also, which is fine, what really turns you on, and I want to tell a quick story. My sister is a great artist, and she can paint, you know, and I can't paint it all. And James, I was visiting her in Maine, she lives in Kennebunk, Maine. And we went to a coffee shop, and she said, you see that picture over on the wall there? And I said, Yeah, that's beautiful. And she said, I painted that. It's like, wow, how did it get here? How did you get here? She said, I painted and I put it up for sale and this coffee shop bought it. I was like, Oh my god, you could do that. Why don't you do that for a living? My sister's a mortgage broker. I said, Why don't you do that for a living? You know, like, you could go into your basement, paint a couple paintings, you know, how long does it take to paint a great painting like that doesn't take her that long. You could sell them and keep getting better at painting and better at selling them. You should do that. And you know what she said to me? She said, I don't like painting. It blew my mind. And it got me thinking about, you know, the difference between the things that we like and the things that we're good at. And yes, it would be great if the things that we're good at is what we like. But the truth is my sister loves helping people, she loves to be on the phone, she loves to be bringing value to people as a mortgage broker helping them to find the right mortgage that fits their situation. And that's the, that's the reason why she doesn't paint. And so I just want to, you know, use you as a great example for the audience, as someone who really has, you know, said, I found my passion, and I'm pursuing it with vigor.

James Leong 05:38
Yeah. And to add on to that one of the mantra they have released by a pastor three years is, Confucius said, if you do what you love, you'll never have to work another day. So I believe that to be true. So I resonate a lot with that, that's kind of how I felt my life has been. So when I show up for work, and is trading to be in front of people, is very much was looking for something very, very joyful. So I bring joy to the process, and I enjoy the process, in return. So definitely go and seek your passion. I think that is what gives us joy and happiness in life, which is ultimately the most importantly,

Andrew Stotz 06:13
you're a great power of example, for all of us on that. So I appreciate it. So 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 surrounding that. And then tell us your story.

James Leong 06:29
Thanks, Andrew. So when my good friend, our good friend, Avi introduced you to me, I was happy to say Yeah, sure. Again, coming from a space of being giving. Okay, Andrew says, I need a podcast guest. Why not? Say yes, very quickly. And then when I check what you want to talk about Jesus, men brought back the goosebumps. But I'm rollback. I'm going to talk about my worst investment ever. So I make a lot of mistakes along the way. I don't think this probably like the last year was, I will say one of the first ones that I made, which is why I remember it so well. So is I started off was like freshman school, right? So um, we knowledge in finance and accounting, so I thought I understood numbers. So there's this particular company, it was listed on a stock exchange when young startup was just a newly IPO company, a lot of hype around a tremendous growth prospects, not a day could a week go by, because somebody says something great about this company. And of course, the share price goes up. And that's what attracted you all my attention. And so the numbers look good. And so that's why I invested calling this investment, relatively substantial investment from PE. And now guess what? So IPO year was the best year, if you look at the prospectus, everything leading up to the IPO was perfect conditions such as a j s shaped growth curve, sales, revenue, everything was going and then just after the go IPO things that we did. And so this is where the first spot of trouble begin. But that's the problem. In those days, these were pre internet days. So there were no quarterly reports, you can go and google it was fine. It was what people are what analysts are saying what you write a great analyst, and you could be saying about the company, or I couldn't get like, last 510 years of data for free on the internet, anything I get, I get it through published a report, and best like six months after the financial year, and so that's gonna always be the fact. And the thing that you can get ahead of the numbers are really news. So while the numbers are not looking so good, a third year, people are no analyst, we're still talking about all the companies gonna turn around. And we have great investors coming in, in the form of royalty. So this was the confidence and so you think about Warren Buffett by no investor, right? So concentrated portfolio. And so, so you held on to Buffalo, and the next year, then we got worse. And now this is where the problem is. So when you get so fixated on a story that you ignore the numbers. Yep. And so when and beyond some point, it becomes painful to cut loss. And that's when you hold on to a hole. So I think and eventually, eventually the company won't. So and it was like, okay, so I kind of see the whole thing. You know, in slow mo arrow skill, I'm still holding on to it. And it was absolutely disgusting. absolutely disgusting. And well, so is really about what you know, what you learn versus what your reptilian brain tells of the emotional brain versus the logical brain. So on one hand, you know, you should stop, stop, stop the loss. But on the other hand, you are hopeful you're still buying or latching on to an old story. So I think there is something a big powerful lesson that I learned. And so let

Andrew Stotz 10:27
me ask you, so in the end, did you ride it all the way down until you lost everything? Or did you sell it at you know, 90%? down? or How did it go?

James Leong 10:37
Yeah, it was like, Okay, it's time to card in before anything goes on. Right? And just out of everything, some cash.

Andrew Stotz 10:49
And you went and bought a cup of coffee,

James Leong 10:52
coffee, money, coffee, something

Andrew Stotz 10:54
like that. And let me ask you a question. Can you remember the point where you felt the most kind of, I don't know, embarrassed or kind of ashamed? Or, you know, was there a time that you just thought, I really messed up? And you know, I? Can you think of a day, can you think of a time when you were there?

James Leong 11:12
Well, I think the point has been denial is that you're looking at the numbers, you look at the numbers and very clear. But then inside your mind is a story that tells you otherwise, because somebody else is telling you the story in those days was just printed copy media, right? And it's whatever messages that are putting out there. And you want to choose to believe the story rather than the numbers, I think big mistake, big mistake.

Andrew Stotz 11:34
Yep. Okay, yeah. So let's, let's go through what lessons you learned last summer, you've already revealed some of them, but maybe you can summarize them. 123?

James Leong 11:42
Yeah. So I think the most important thing here is to be really objective about your investment. really trust the numbers, the numbers are there. I believe that today, numbers even more accessible than numbers in the past, because we could get the latest information we could get with analysts they say so everything because it's internet reading, right? And the past years, data five years, 10 years. So I think that mistake could be easily avoided. That's number one, because of the pure availability of data. That's number one. And number two, is to be able to really know your numbers, because the numbers speak true. The numbers speak truth, correct. So and so do not let the numbers override the story. I mean, don't let the story override the numbers, always pick up the story with numbers, I think that's really, really important.

Andrew Stotz 12:34
Yep. Yep.

James Leong 12:36
Yes. So

Andrew Stotz 12:38
that's great coming from a numbers guy, you know, that we, you know, you have to balance right, you know, there's a story, you know, you've got to believe in a story, there's no story, you know, you, the numbers don't matter. So the story is what hooks you into, I know, I'm talking as an analyst, as an analyst writing research. I didn't even write research on companies, if I didn't feel like there was a hook, there was a story, this company is going to be scaling back, this company is going to be expanding new products going to have a better higher margin, we need that story, to build our narrative of what we're investing in, but then, then you need the numbers, also, and it says you got the story, but you don't have the numbers, then you may not have really a great investment idea. Exactly. Exactly. Um, so I want to just go through a couple of things that I take away from it. Um, the first thing I'm thinking about is you mentioned something about Buffett and concentrated portfolio. And this is for, you know, all the people out there who are saying I want to start investing in the stock market. And, you know, I found this stock, and it's really interesting. And I'm like Buffett, I believe in, you know, holding for a long time. I think what you need to understand, you know, for the audience, I want you to understand is that when, when Buffett talks about, you know, holding stocks for the long term, actually, it's a little bit confusing, what he's really talking about, is having exposure to the stock market for the long term, really what he's talking about, because he's building a portfolio of 20 stocks or 10 stocks, and he wants to hold that individual stock for lifetime. But he knows you can't do that, eventually, you're going to sell one or the others. He's recently sold, you know, a bunch of bank stocks and airline stocks and all that. So I think that the wisdom of his concept is the idea of keeping your exposure in the market. Now, for some people keeping their exposure to market is just to you know, buy an ETF or an index fund. That may be the way to do it. But I think the other thing that I would highlight too, from research that I've done, and what I've learned over the years and and what I've learned from guests, is if you're going to own a stock, if you're going to buy stocks in the stock market, own 10 not one no less than 10 because less than 10 you won't be fully diversifying, and buy if you buy more than 10 you might as well just buy an index fund. So if you want to be a stock picker, build a portfolio of 10 stocks So that's the only other thing that I want to add some research that I did a while ago, where I looked at I was in the Philippines and I was teaching about young people about how to start building their wealth. investing in the stock market, the book had just come out. And I was teaching a class, I was teaching a group of 2000 students in the Philippines, it was amazing. We had an amazing day, a lot of energy. But I had a problem in the Philippines because they didn't have ETFs that would allow them to own for instance, every stock in the world, all you have is a Philippine market that they could invest in. Philippine market doesn't have that many companies in it. And most of these students did not know how to do financial analysis. So I decided I would play a little game myself. After that, I would ask the question, I wonder if I went back 10 years ago, and I said every year, I just randomly selected a portfolio of 10 stocks in the Philippines. What would have been the outcome? So I ran simulations of hundreds and hundreds of those to try to see where the outcomes were, you know, some of them did really well, some did really poorly. And I thought, well, it's not really good advice. If I tell them just to randomly select stocks, it's good in the sense that they don't know how to pick stocks. But it's bad in the sense that some of those portfolios will crash. So then I said, Okay, what if I overlay a stop loss on to that and say, if any of these stocks fall by 1015 20%, I tested at different thresholds sell it. And what I found was that the downside was a lot less the down the worst portfolios were considerably less. And the result of that is that I came up with this idea of just randomly selecting for those people, where you don't have an index some markets in you don't have a good index, randomly selecting, but putting a stop loss on it can add a lot of value. And the takeaway from that little story is use a stop loss. a stop loss can help a person overcome the emotional pain of selling. And also I would add, after many interviews is that just sell half of your position. Just so half, it gives you get you over the hump, like to sell, and then reconsider the remaining any thoughts on those? I went on kind of long there. But those are two things that I took away.

James Leong 17:19
Those are James, great advice. Great advice, Andrew. And I'd like to add on a couple of things. One of which is, when Buffett says he's a buy and hold investor, I think you will notice his portfolio. So he's really buying into well established companies company that has been around like Coca Cola, right, for example, Walmart, Costco, so he hardly ever goes into the IPO. Until recently, where he bought into snowflake, this pure, there's a real departure from his established practice. So the speculation is that maybe his lessons are the ones that make those decisions, by key buys into established company with good track record. So the story that I share with you was an IPO company. So we need to be it could be the Tesla, for example. Right? So that's something we need to put on a different set of lens and future as we look at IPO companies with established competitors. Number one. All right, no one. Yeah. So though these companies have a trend, right, there's a key idea versus a company doesn't doesn't have a trend isn't the first learning and the second learning. Buffett doesn't believe in diversification. But then there's another disciple of Benjamin Graham, the teacher of Warren Buffett, and his thing is what was lost. And what his losses say that my makeup, my psychological makeup is entirely totally different from Buffett, even though they both studied under the same master. He said, I am a diversification guy. So he looks again, he's driven. He looks for undervalued stocks, but essentially, he builds a portfolio of stocks, not concentrated bets. So I think we need to find out what our psychological makeup was really, what's important for us what can be absorbed, what could we take? How much volatility could we take in a portfolio? I think those are the things that matches.

Andrew Stotz 19:06
Great, great value. So let's now think about that young man or woman who's listening right now, who's found that really exciting story, and they're ready to get into it and put their money in. They're ready to do it now. based upon what you've learned from this story, and what you continue to learn what what action would you recommend that person take to avoid suffering the same fate?

James Leong 19:29
Okay, so that's something I've already done, right? Because as part of my territory, so I teach, I tell you, I teach finance and it is simple. I teach people to read annual reports, they become one of my key case studies. And so, what I teach in the class is they become so obvious when you look at the numbers or the slicer, then you look at the balance sheet, the income statement and the cash flow. You're able to assess the strength, performance and health trend or financial ratios, it becomes crystal clear The company is in trouble and continued to do so. So again. So if I may, for a word of advice, which really go and study a course on how to read financial statements and reports could come to mind come to yours, I think doesn't matter. But a key idea is perhaps the basics of reading financial statements.

Andrew Stotz 20:20
Great. And if they wanted to learn more about your course, I'm going to put in a link to your website. So anybody who's interested, you can come to the, to the blog on this and to this episode, and then you can look at the link, click on it and go to the website. Is there any other way that people can reach out to you?

James Leong 20:41
Oh, we're sending the link in lingers long? Yeah,

Andrew Stotz 20:44
that's okay. I'll have the LinkedIn link, also to your LinkedIn. But then, if you just can't wait, just type in James Leon, and you'll find him. So last question. What's your number one goal for the next 12 months?

James Leong 20:58
number one goal in the next 12 months is to complete my book, right? So I've started from my book, and it's going to be called. So I run a course essentially, for accorded find it, it belongs to the Journal of finance for non finance managers. So I teach this to corporate executives, I teach this to entrepreneurs in the university, National University of Singapore to undergraduates, and to empower them to build and make better decisions using financial statements and annual reports, reading financial ratios, right. And so what I've done over the years, is that I've come to a great discovery that people find in genuine learning finance and accounting, real pain, right? So there's a lot of years. So people have been telling me, James, you know, I wish I attended your cost now 10 years ago, but I thought it would be so painful. And I might fall asleep, I might get lost that I just held back for 10 years. And when it comes to your cause, I realized I suffered for nothing, because you're able to make something. So you're able to simplify everything you make, it's so fun to be learning the topic. And I just realized that I'm able to learn this. So that's what I get a lot. And really how I do it is true, a way of simplifying using a lot of visual storytelling, and relating the numbers to the story. So maybe I could show you a cool tool that I use. So this is my invention is called accounting in a box. So literally, it is boxes of two cars, which contains key and core financial concepts and principles. They allow anyone with no financial background to learn and grasp finance and accounting easily so that you can muster it with a set of financial statements.

Andrew Stotz 22:46
That's awesome. And that's such a great little tool. Yeah, like a handy, you know, something that you can, you know, flip through and and grasp. So that's pretty exciting.

James Leong 22:56
Yeah, let me just show you a Chromecast that's gonna hold the low lying at

Andrew Stotz 22:59
that. And then let's see one of them. Let's show one of them up to the

23:03
go. The balance sheet.

Andrew Stotz 23:06
Assets. Yeah. All right. Fantastic.

23:10
Yeah. So.

Andrew Stotz 23:12
So when are we going to see the book come out? Ready to anyone? Fantastic. Yeah, yeah. All right. Great. And so listeners, there you have it, another story of loss to keep you winning. Remember to go to my worst investment ever.com slash deals to claim your discount on how to start building your wealth, investing in the stock market course. As we conclude, James, I want to thank you again for coming on the show. And on behalf of East Arts 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?

James Leong 23:49
Absolutely. Keep learning, learning never stop.

Andrew Stotz 23:53
Beautiful. 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.