Ep448: Axel Meierhoefer – Never Get Involved in Anything You Don’t Understand

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 to win in investing you must take risk but to win big you've got to reduce it to join our community go to my worst investment ever.com and receive the risk reduction checklist I've created from the lessons I've learned from all of my guests and get my weekly email to help you increase your investment return. Also in the community you will receive a super special podcast listener discount on my six week valuation masterclass boot camp. This boot camp is for those who want to learn exactly how to value companies like a pro and advance their career in finance. Go to my worst investment ever.com to join our community for free fellow risk takers. This is your worst podcast hosts Andrew Stotz, from a Stotz Academy and I'm here with featured guests, Axl Meyer Hoffer Axl, are you ready to rock?

Axel Meierhoefer 01:02
I'm ready. Let's go. All right, well,

Andrew Stotz 01:05
let me introduce you to the audience. Axel Meyerhoff. He was born in Germany served 22 years as an Air Force aviator and instructor. In 2005, he started his consulting company, and then discovered real estate investing during the recession. Now, experiencing financial freedom. He wants to share his secrets and his life lessons with all of us. You can find him at his ideal wealth grower YouTube channel, Axel, take a minute and filling further tidbits about your life.

Axel Meierhoefer 01:41
Yeah, thank you, Andrew. Well, you pretty much summarized it very well. The only other thing I would say is when I retired from the military, I tried being a regular employee for a company. And then like you said in 2005, started my own business. And that's pretty much the only thing and I'm still doing the same thing these days.

Andrew Stotz 02:00
And what when you started the consulting, what area of consulting is your, you know, area of specialty.

Axel Meierhoefer 02:07
While this is a little bit of a maybe a tangent to what we're actually going to talk about, it's a little bit of a funny tension, maybe. So I was absolutely convinced, like you mentioned, I'm an instructor and in the military, I had a pretty good standing saw a lot of things. So I thought that would be interesting to companies. And when I started consulting, I thought I would just stay in this, you know, like military events, friends, country, contract area, lots of money, they training people in cold stuff, and so forth. And I got asked by another consulting company owner, if I could help on something completely off the cuff where Schering plough and Merck, two pretty big pharmaceutical companies had merged. That's what they called it in reality one. No one bought the other, right, yeah, what acquisition but one thing I thought that they did was actually quite smart is to say, okay, on the merch side, let's look at all the processes and things that we're doing really well. Let's look at the sharing side and look at what they do particularly well and then identify the data. And instead of us trying to pretend as if we suddenly knew just because we came together how to do a better, let's bring in some people from the outside, and let them take a look and make some suggestions. And without going into too much detail. They had like a horrendous and unbelievably expensive process of basically telling the regulator's meaning the FDA, that they made a change in their marketing. And then to keep this kind of like a little bit lighter. I always said when I first asked, Can you tell me the most egregious which lines up well with our consumer, but in a different area. So the most egregious example of how this works, and the guy that I talked to said, Well, think about this, this happened last year, we have nine people on this committee from like, really highly paid six figure lawyers, to other people, experts, scientists, and so forth and so forth. And the company leadership decided to retain the same design Christmas card, but change the year naturally. And nine people had to come together in a room and each and every one signed a form that was submitted to the FDA for this particular product that the Christmas card was for going out to other vendors and stuff like that. And the only change was, I think it was from like 2003 to 2004

Andrew Stotz 04:39
Oh, my God.

Axel Meierhoefer 04:42
And they said, Well, you know, this is kind of what we're facing and we're looking for people who can change this and so I tapped into this I you mentioned this earlier, please write like German structure thinking and if these and stuff and came up with an approach and I briefed them on what I think They should do to avoid a lot of time, a lot of pain, a lot of costs and so forth, that everybody was seemingly happy. I thought, Okay, that was cool. And now I go back to my military defense training kind of stuff. And a few weeks later, I got a call and they said, you know, we really like what you came up with this would be a significant change to the procedure that we have been doing before. Could you train our people since you develop that you probably endure an instructor you should be probably the best person to train everybody. And I'm like, sure. I mean, you know, training is training in a way I do that. What little did I know that that meant 500 us marketing people and 250 global marketing people. So for two years, I train people in the Merck Training Center in Pennsylvania, on how this process worked. And I still claim, I said, this has a little bit of a funny twist, that somebody in that Homewood suites hotel right next to a training center, one night came along, and tattooed and invisible ink, pharmaceutical industry on my forehead. And ever since I've only gotten pretty much 90 whatever percent working in the life science and pharmaceutical industry. So, you know, the short answer to your question will be how does a military aviator and staff officer end up being a consultant in the life science industry? When for me,

Andrew Stotz 06:25
that's amazing. Yeah. And, you know, one of the things that I always have thought all my life is, you know, that's the value of competition, too, because big companies that are really big, maybe that are highly regulated. You know, the truth is, there's so much opportunity, and that's where I love. Yeah, it's one thing I worked in Pepsi in Los Angeles, and, you know, I saw a lot of the same type of thing. And even though, you know, it's competitive and all that, the reality is, is that without small competitors coming along, trying to eat your lunch, you know, sometimes you can really get off track. And so I always appreciate in America, we had when I was going to university, we had something called students for students in free enterprise or something that was trying to teach young people that, you know, the value of small businesses and, you know, small businesses can either take over big businesses over time, or they can make business big businesses better. And so the waste is huge. Yeah, absolutely. There. Well, now it's time to share your worst investment ever. And since no one goes into their worst investment, thinking it will be tell us a bit about the circumstances leading up to an Intel us your story.

Axel Meierhoefer 07:44
Okay, yeah, thank you. So the story basically starts in the setting of the story starts in a way with me transitioning from having come to the United States, in as part of an exchange program to fly f 111, fighter jets for the US Air Force. And when that finished, I thought, my family, my wife, and we thought we would go back to Germany. But we were told, and not in those words. But that's my interpretation piece had broken out unification in Germany, and blah, blah, blah, and training, you should no longer be done in aviation, in these densely populated areas in Europe, but should be transferred to less densely populated areas, like for example, New Mexico. And since I was already stationed in New Mexico as part of this exchange program, they said, Well, you know, the language you just finished your term as a US Air Force Base, we have signed a contract at another US Air Force Base about 300 miles further south, towards the Mexican border in El Paso area, where we want to develop a German Flight Training Center together with the US Flight Training Center for what at the time was called the stealth fighter and then trained together. And to get this out of the ground, we need to have somebody with experience dealing with both sides, speaking the language and all that stuff, and manage the project. And so you have been chosen by some of our leaders here in Germany to be the program manager for this new Flight Training Center. And so I moved there and you have to keep in mind this was happening around the year 2000, right, like late 90s, early 2000s. And with this transition came the need for a lot of people being put in but initially we were about 100 and then it grew to 800 people from Germany, all kinds of different ranks in a desert town in New Mexico basically. So there was a lot of need to really do relationship spiriting and engagement and stuff like that and the media I mean, not like social media what we have right now but the amount and the type of media Yeah, that was common at the time was constantly drumming, how necessary it was for everybody to be in the stock market. And this amazing future coming our way this, this amazing technology, the dot coms, everything will be automated, the robots will rule the world, everything will be on internet and websites and stuff like that. And in a nutshell, basically, you would be an idiot if you wouldn't try to participate. And at the time, and I have to admit, at the time, neither myself nor most other people that I was with, had any idea what was like a blue chip stock or a penny stock or anything like that. They didn't teach you that in the military. They didn't teach us how to train other people how to fly a fighter jet and drop bombs and shoot missiles and all that kind of stuff. But one thing that was the real fascination, initially, for me, and for like a core group that became almost like a tiny little investor club, was that it didn't really take a rich person to start participating. Because these penny stocks were relatively cheap, like, well below $1 apiece. So you could buy like several 100, or several 1000. Because as good Germans, we always thought, Well, if it's not a substantial number, I wouldn't make a difference. And for anybody who can remember that time, there were all these stories where people, it sounded almost like overnight. But in reality, we were realistic, and typically start in German skeptical enough to say it was probably not overnight, but within a year or a few years to really reach amazing levels of growth in the companies, they collected VC money left and right, stock prices exploded from a few pennies to a few dollars and stuff. And one thing I always have to say let aside, hit at my American friends. One thing we learned in Germany, regardless military or not, is like the basics of math, we can add, subtract, divide percent, that kind of stuff it basically without having to take out a calculator. And so you just looked at the stories and these numbers, and it became very obvious. there's money to be made. And so initially, several of us started doing this on our own, I actually said, Hey, you know, this is also kind of like an opportunity to build community by doing it together, talk about and we started this little club like thing that initially met once a month, and then more or less every other week. And in a sense, it was cool, because we got to know each other and on a different level, we couldn't get to feel into who is really kind of out there and adventurous and who was more holding back and who was I was kind of more in the middle. But we all made money. And we started having these kind of amazing dreams. Like one of my friends had started handing around pictures of the BMW that he would buy himself. And one thing that the audience needs to keep in mind is these military assignments typically have a pretty fixed, determined end time, when you get moved to the next place. It was a little different for me, because I was basically located to get this thing to the finish line. Almost everybody, sooner or later came and went. And so we literally not only saw the news about the gains, but we also had cases where the one guy actually did get his BMW. He sold everything about the BMW and that was a crazy deal where you could claim at the time diplomatic status as a military member in the United States. So you got the car without Texas, BMW later, you shipped it from Munich, to New Mexico, no, Texas. And when you took it back, it was part of your moving inventory.

Andrew Stotz 13:53
For young people out there, in those days, if you can buy a BMW, you are rich,

Axel Meierhoefer 13:59
or you were and the other friend that I still vividly remember he was a staff sergeant and his family had a farm. And he had seen how many of the people in the rural areas there in New Mexico had these massive Ram trucks with double wheels in the back. And they were not cheap by any means. He had to not just use some of the gains he had made with the stocks, but he basically saved he had all along when saying when I go home, I get one of those, but the stock gains actually had. So here's the other vivid example. I had made all kinds of interesting ideas and goals and stuff of what I wanted to do. And had basically believed that it wasn't so specific when you actually needed to do it. Right. That one guy did it a year ago. Then the other guy was this big Ram truck did it six months ago. I saw a lot I can do it maybe next year. And then the market basically fell out pretty quickly for anybody Was it around at that time, I'll remember, so read about it. It only took I think, like a month or two to lose amazing amounts of value in the stock market. And so I actually didn't get to do any of those things that some of my friends did. And it was very devastating because the amount of money, right, I mean, in my case was literally $75,000 of I still to this day, right? If you start asking me questions about it, Andrew, I would probably still argue in that way, it was in the sense vapor paper money that I never really had. But on the other hand, I'm realist, and I've had it at any point in time, and my friends bought a BMW or the Ram truck had sold, and I would have had the money and could have done anything like that or other stuff that I had in mind. So it was, you know, gains, yes. And it was really money that I ever got my paws on. So but, but it was my money, basically, the value of the investments had accumulated to this point. And so

Andrew Stotz 16:10
yeah, when was the point that you realize it's all gone? Or, you know, like, it's You got it, it's not going to be, you know, it's not going to ever really come back?

Axel Meierhoefer 16:20
Well, it didn't immediately plunge completely down, like from like, 100 to 25 in one day. But like I said, we had these bi weekly meetings. So we got a saw a little dip. And we said, Oh, yeah, they have has been volatility before. No worries, you know, it's going to go back up, then two weeks later. And it's not that we never looked in between, but you know, you kind of the worse it got them unless you wanted to talk about this next meeting, after we were already like, I would say, like, 40% down. And we remember that meeting we discussed, should we just sell everything, we were still pretty much in the plus. And ultimately, I would have to admit, I probably didn't really literally lose money in the sense of if I compare how much I put in those two years and how much after all, when I basically liquidated I got close to what I put in back in but it was still 75,000 less than what we could have had. Yep. And it took us basically a month. And by that time, it was literally too late. And anybody who lives through that can tell how long it took the NASDAQ to even come close to where it was before. So

Andrew Stotz 17:27
yeah. So how would you summarize the lessons that you learn from it?

Axel Meierhoefer 17:33
Um, several things. One of the really core lessons was and it took me a long time it does. It might sound like in our conversations that happened overnight, but it took a long time for me to analyze, again, maybe in somewhat typical German fashion, why did I behave the way that I behaved? And the answer that I'm still claiming, giving today is that I was much too willing to buy into the Kool Aid or drink the Kool Aid, if you want to call it that. And rather than really become knowledgeable, right, it was a thing that I really didn't fully understand. I just saw the news, I saw the stories, I got fascinated, and I thought, well, I can do 100 bucks, or 150 bucks or 300 bucks, anybody can do that. And never really spent the time to understand we were sounding like we knew something because we were discussing the percentage gain, you know, two weeks ago versus now. But we had no understanding what is acade? price to cost value or price to cost ratio? or Why are these companies growing? Or do they have anything like Do they have either any kind of IP or any kind of facilities or any kind of assets or anything other than hype? Right? None of that? We might not know that. So one of the core lessons I would say was an I really lived by this now many years later, that I only get involved in stuff kind of like Warren Buffett right? Like I don't do anything anymore that I don't understand. And if it's initially interesting, then I'm going first into the research until I'm satisfied. I understand I believe I understand it well enough to commit money to it. Yeah, that is one of the things I didn't do. And the other thing is it might sound like this would be a generalization to the stock market. And I think that would be unfair, not because I'm a big stock investor at my age right now. But the point is, if you do the research, then there are organizations who have great IP who have great assets who have reasonable price to value ratios and stuff like that. And then there are plenty others then it's just kind of hype made or somebody you know, just convincing the lemmings to all jump into the same direction. And that distinction, I wasn't able to make that distinction at the time. And so now, I'm basically and this is why I have a wet grower. It started as my retirement plan, because I decided I needed to do something that I understand and that retains value.

Andrew Stotz 20:12
And I got it. And maybe I'll add a few things that I take away. You know, for the listeners out there, what X was talking about is the.com. Boom. And to put things in perspective, while you were talking, I pulled up some charts and some graphs in Robert Shiller has great data on this the what's called the cyclically adjusted p e ratio. Basically, what he's doing is just taking the earnings of companies over the last 10 years or 10 years, averaging them, and then saying, What's the price for those earnings. And just to go back in time, if we look at the peak p e ratio, going way back in time, the first peak of the data that he has was in 1901. And the peak of the P e ratio was 25 times that was massive. But it wasn't as high as the 20, the 1929, boom, which was almost 35, right about 33 times, PE, and then we had almost a 90% correction, and the Great Depression. So let's put the.com bubble in perspective, that was about 45 times P, that was the highest bubble that we've ever had, as far as P E is concerned. And it went from basically, when you probably started looking at the market, it was trading at around 20 times PE. And then it went up to 45 times PE, and then went back down to 20 times PE, within you know, a couple of years. And as you say it took years to come back. So the reason why I say this is because I think the lesson that I take away, and I want all the listeners to think about is it. When you look back at price charts, you know, you can say, why didn't I? Why didn't we sell right, then, you know, it's because you get caught up in the emotion, like you said, and so one of the lessons I've learned in my own career as in the stock market is you really never can know the future. But you can know the present. As someone I can't remember who said is like, I'm on the cutting edge of present of the present, like I know where I am. So let's put that in perspective today. So if the P during the.com bubble was the highest it had ever been at close to 45 times PE. And you as well as many other people got trapped in that. Where's the PE today? Well, according to this data, the PE is now at 37 times. So we're only slightly below the.com. Bubble now you can say what happened in the crash to the.com bubble was it's so much the profits, were just there were no profits. So we were all being sold a dream there. Now you can say okay, there's a lot of profits underlying the companies right now. And the global economic shutdown, basically destroyed a lot of competition. So the surviving players actually probably have a lot of profit. So you could argue that maybe that's going to go from 37 to 45, or 50. Could. But I just want everybody to know that this is a great lesson from Axel to think about where things are. And the reality is, we are closer to the top of a bubble than we are, then we've been in a long, long time. Does that mean it can't go up? No. But if you know where you are, it can help you think about what you do. So that's the lesson I take from it. Is there anything you'd add to that Axel?

Axel Meierhoefer 23:54
Yeah, I mean, one of the things that goes together with what I said earlier about understanding more of what you're doing, why you're doing it, and how it functions is that you know, the Shiller index or any of those different tools that are out there and charts and things that are out there when you start studying and you still won't have to say okay, how does the actual underlying foundation work, right, and it just take the example of the s&p 500. And keep in mind, I'm no longer a stock investor, but I'm still researching things to always try to stay up to date. And what I would say is, what very few people pay attention to is how these 500 are actually put together. And it became reasonably pretty public when Tesla and enter the s&p 500 and a bunch of companies had to be taken out to kind of rebalance the whole thing. But what it teaches somebody who says okay, my lesson learned is to really try to understand above and beyond just the individual stock or the underlying company to the stock is to say okay, well if it now looks Like it's 37, but it's 37 for the kind of companies who are the biggest right now, which is vastly overvaluing technology. Whereas you and I are not constantly buying a Tesla or putting solar on our rules or stuff, the only one in the technology space where you could say we really participating daily is kind of Amazon, right, but most of the other ones are not. And so that's another component to keep in mind to really get an understanding, is it really fair to say the s&p 500 of 2021, compared to the s&p 500? In 2001, versus the s&p 500? In 19, to anyone that was completely different from what were these kinds of companies? And what how representative of the economy? Were they really? And how does it look right now, which all in a long way? I'm just saying, I think this is even more dangerous, if you ask me because of how the weighing has shifted to what it was in the past, which might mean 36 is already similar to 45. In the.com. Bubble. Yeah. And but to me, the other thing that I would say, as a lesson learned beside this kind of getting to understand what you're doing is to also really in a nutshell, if I bring it to the point, and I do this, oftentimes in idea right grower, is whether it's on the videos, or podcasts or so forth, is to say, Don't forget, or maybe make this your number one thing to first ask yourself, what's the purpose of your activity? Right? And I'm being asked these days most often, is it too late to invest in real estate? And I'm saying what, ask yourself, what is the purpose, if you say, I want to invest in real estate, because I want to get passive income, positive cash flow to get ultimately to my time freedom point where I No need to exchange time for money anymore, then the figure to look at that is can I get this at least my advice to your listeners, anybody who comes to me is I want to keep it simple. If you find a property that pays you $1,000 in rent, then you shouldn't pay more than $100,000. for it. If you pay 150,000, you need to make 15 $100. Now, as the market kind of goes more and more crazy, it's harder and harder to find these, what I call well performing properties. But if you just apply that rule, and you know that your purpose of making positive cash flow from day one will be met, no matter what it is just mathematically impossible not to meet that. Now, if you say, Well, you know it the same place costs 120 now, and now they want 150 because everything got more expensive, but I don't get more rent, you're violating your principle, just like I violated the principle of knowing what I'm doing when I invested in the stock market. So coming down to say, what is the purpose of my activity? And from that purpose, derive some clear criteria and principles that you then apply no matter what also keeps you safe? Yeah. And I think that's an important thing. It's not so much should you do like, I'm now recommending real estate investing? Or should you go back into stock market? Or should you invest in gold or Bitcoin or whatever you do? As long as you can really understand it, and then derive the purpose and your principles from it. Any one of those could work?

Andrew Stotz 28:19
Yeah. It's great, great device. And the idea. There's two parts, you know, one is that you know, you, one of the things I loved about finance, and I've been doing research for years valuing companies is, I always want to dig down deeper, like, okay, what's causing that. And then once you start digging down deeper, you start to find even more questions. And it's a never ending cycle of questions. So for instance, let's look at another thing that makes it potentially more dangerous. Today, when the.com bubbles started, the long term interest rates for government bonds was about 8%. When the.com bubble peaked, that had fallen to about, let's say, 5%, that was a big fall. And for people that don't understand that, that that basically means stock prices generally go up when the stock market is when when when interest rates are falling. But if you look at this current rally from the 2008, bottom to today, long term interest rates have gone from about four and a half percent, to about one and a half percent. So it's been an absolute massive decline in interest rates, that has pumped up that PE and and now you face a situation where interest rates could start rising and when they do, what we'll see is that that PE will start to come down. So yeah, there's so many different factors. And I think, for the listeners out there, you know, I think the challenge that I've written down from what Axel is taught us is identify your purpose. And then determine your principles. And as you do that, it gives you a foundation for what you're doing, not just chasing, you know, the ups and downs. So, for me, that's the biggest takeaway, let me ask you based upon what you learn from this story, and what you continue to learn, what one action would you recommend our listeners take to avoid suffering the same fate? Think about it. They're in an investment club right now, talking about the amazing gains that they made and all that.

Axel Meierhoefer 30:28
Right. Well, for one, I mean, there are a couple of different ones. One is, I would say, don't be greedy. Right? Like, if you have been lucky enough to follow your principles and follow your purpose, and things have worked out really well. There is nothing wrong with taking something off the table and put it into something that still has all this potential ahead of it. And I'm saying this deliberately in this abstract way, because you need to do the research to find out which one is the one for you. Is it gold? Is it Bitcoin? Is it real estate? Is it stock market? Is it something completely different? Like, you know, I don't know I've been recently conflict contemplating to invest in a cow farm, whatever you know, and like, but it comes back to do your research. But don't do it while you kind of have these greedy eyeglasses on to say, Where can I make another couple of percent to increase my already amazing gains? Right? I mean, the one lesson that I have learned in this, regardless is, most people cannot time regardless which market you look at exactly where the topics, so you have to basically manage you agree, but the other part is from a behavior perspective. And it might sound weird, and you have probably had many, many of your guests say the same thing. But I would say if you want to participate, if you see all this what some people might call craziness or lack of participation for certain groups, I would say it's not a matter of can you be part of it or not. But can you be disciplined and that goes back to this, you know, the richest man in Babylon kind of the if you can be disciplined enough to put 10% of what comes in a way into an accumulation account, before you ever get your paws on it, make it automatic, let it come away, then, while it's accumulating, you do the research for the thing that kind of tickles you whether it's stock market, or real estate, or gold, or Bitcoin or whatever, maybe. And as you do this, and you give yourself anywhere between six and 12 months to learn, that's plenty of time to get the accumulation account to be something big enough to really do something with it. And then you can do an informed decision of putting your money into whatever you find serves your purpose, that will be my advice. And if you follow that, then there is no exclusion. The thing that frustrates me the most is that a lot of the people come to me and say, Hey, I read or heard something on Android podcasts or so forth about real estate investing. But I think this is only for rich people. And I always say you know, as long as you don't define a rich person to be able to put 15 or $20,000 together, then it's not for rich people because anybody I believe can put 15 to $20,000 together and that's the entry fee for the first property.

Andrew Stotz 33:13
Okay, so last question. What's your number one goal for the next 12 months?

Axel Meierhoefer 33:19
Well, I want to get my portfolio grown in my real estate property portfolio by another two or three properties

Andrew Stotz 33:27
exciting and new. Is that going to be in the same region in the same time? No, actually,

Axel Meierhoefer 33:32
I'm trying and this might be surprising for you I have investments in Ohio and some in Idaho and some in Illinois and so my new place where some maybe all of these are going to be is Alabama.

Andrew Stotz 33:45
Okay, interesting. Well, we look forward to learning more and listeners Don't forget to go to the to the YouTube channel, right? And at the YouTube channel, you can learn about you know, what axils thinks and what he's doing ideal wealth grower well, listeners there you have it another story of loss to keep you winning. My number one goal for the next 12 months is to help you my listener reduce risk and increase return in your life. To achieve this I've created our community at my worst investment ever.com so join to get also the discount for podcast listeners for the six week valuation masterclass boot camp, where we value companies like Tesla, like we talked about today. As we conclude, Axl, 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?

Axel Meierhoefer 34:44
anybody, anybody can be an investor.

Andrew Stotz 34:48
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.