Ep451: Chris Franzen – Only Play in a Field That You Really 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 received the risk reduction checklists I've created from the lessons I've learned from all my guests and get my weekly email to help you increase your investment return also in the community you can get a super special podcast listener discount on my six week valuation masterclass boot camp. The 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 free community. Fellow risk takers This is your worst podcast hosts Andrew Stotz, from a Stotz Academy, and I'm here with featured guest, Chris friends and Chris, are you ready to rock?

Chris Franzen 00:56
Absolutely, Andrew, no question. Absolutely.

Andrew Stotz 00:59
I'm excited to have you on and I can hear the birds tweaking in the background, and I know you're in a beautiful space. Let me introduce you to the audience. Chris Franzen has been a hotelier for over two decades, having worked in the US, Europe, Middle East and Asia. He learned his trade from the ground up as a chef before rising through the ranks and being an appointed area vice president with Hyatt Hotels as of July 2021. This month, Chris will open his own company advising operators and owners in the field of luxury hospitality. Chris, take a moment in filling for the tidbits about your life.

Chris Franzen 01:38
Well, good morning to Bangkok, I'm here in the beautiful Alpine village of Zermatt. I was hoping I can show you a blue sky and a bit of sunshine and the famous mount Matador. But unfortunately, as you can see behind me a lot of clouds and thoughts, which is not usually the case in his wonderful Alpine village. So I grew up in Switzerland. I am a third generation hotelli. I learned the trade from the bottom up I remember during school holidays and summer that made me go and wash the dishes first, then I had to take care of the tennis courts, the mini golf. Before I then went into proper education apprenticeship, as we call it in Switzerland. I did the chef apprenticeship followed by so many apprenticeship. And after that I went to hotel school. So subsequent to the hotel school, I then joined several small boutique hotel companies. I also worked for Hilton at the time. After Hilton joined Hyatt and I have 22 wonderful years of working in many parts of the globe. And I left them this month, can you believe it? After 23 years in the middle of a pandemic, people thought I'm nuts. You know what to do?

Andrew Stotz 02:53
And you said something, you said something to me before we turn on the recorder. And you know, you talked about the difference between luxury hospitality versus like five star maybe you could just explain what you mean by that. I don't know what that means myself, because I'm not in that. But yeah, let's hear

Chris Franzen 03:12
it. Yeah. So let me answer that question in two parts. One of the one part is from the guests point of view. There is many times a misconception of the five star hotel is automatically a luxury hotel. It's not five star hotels are graded. On a set of points, do they have room service? Do they have Bell service? Do they have 24 hour you know services available, but that doesn't mean they're necessarily luxury right? The other mistake a lot of guests make is they go to sites like tripadvisor. There is certainly space for them to be there. Unfortunately, a lot of these pages also have reviews that are not genuine or honest because everyone can just leave review leave. Now from the operating point of view, through luxury service really starts with personalized service. Start from the moment that reservation is taken all the way to the you know get from the guests before they arrive. What are the do's and don'ts? What are their expectations? build the relationship, right? It's not just about ticking a box going through a checklist. I guess that I've said this time on this slide now you want to know when he arrives Is there a special requirement he has with bedding with pillows, especially well covering, right? So luxury, you can have luxury in a three star hotel. If you have a really great host a really great team who really looks after you. I'm sure most of your viewers had fantastic experiences in 234 star hotels, but terrible experiences in five star hotels. So luxury is about Yeah, luxury is about personalization and building a connection relationship right? Many times people come back to Delhi because they like the people, not necessarily the brand. And that for me is also actually,

Andrew Stotz 05:08
That's a great explanation. And for a person like myself, who is not really very aware of that whole hospitality area, that really makes a lot of sense, you know, what's the experience I have? Because I have gone to many places where it's the people, and they're welcoming, and they're friendly, and they're helpful. Yeah, they may not have a tennis court, they may not have a swimming pool in some cases, because they're not in so now I understand a lot more. Well, that's exciting. Well, now it's time to share your worst investment ever. And since no one ever goes into their worst investment thinking, yeah. Tell us a bit about the circumstances. Tell us your story.

Chris Franzen 05:49
Well, you call it the soccer we call it football in Europe. It goes back to the World Cup in Brazil, many, many years ago must be probably 90 years old, eight years ago. And then when you watch the football games you had around the pitch. You know, the big brands, you have the Coca Cola yet the Nikes, the Reeboks, the McDonald's and the lines. And there was this company flashing up ever saw for the Yang Li green energy. So I watched a few football games. And after a while I thought, well, whoever can afford to put the advertising in a World Cup that is watched by hundreds of millions of people must be a solid company, but I've never heard of them. So after a few days, I thought, Okay, let me do some investigation. And yingli green energy, as basic, as it says, was a Chinese company to invest it into solar panels. And as per my research, it was one of the biggest solar panel producers and they have contracts in the pipeline not signed in the pipeline, with you know, in Malaysia, China, all over Asia. I thought, Man, this must be great investment. So this stock was marked is undervalued, even better. So I went ahead and bought for several 10s of 1000s of dollars, that engli stock on the New York Stock Exchange. So about two, three days later, the stock rose and it was a fantastic investment. And they didn't pay much attention for the next few weeks. And suddenly, the stock plummeted day after day after day after day. I'm not a panic sell, I believe in the long term strategy. You know, see what happens when you go back up. I mean, we all know that ups and downs, right? But unfortunately, on this occasion, it was only down absolutely no up anymore. And it was a complete right. At the end, the company ceased to exist and all the money was lost. So I think this was an absolutely terrible investment. I had other investments, but I also lost money. But not to that extent where we had a complete write off

Andrew Stotz 08:04
long before you bought it, and then it turned out to be nothing.

Chris Franzen 08:10
About eight, nine month. Okay, so the year

Andrew Stotz 08:13
end, and what were some of the feelings that you were feeling as it was going down?

Chris Franzen 08:19
Well, at first at the beginning, I thought it's not too bad, like any stocks, they have ups and downs and you watch the financial news cycles, and there was really nothing about the company being mentioned that they will be folded that they wouldn't do what they said they would do, you know, so I didn't really panic until a few weeks later. It was zero. So, yeah,

Andrew Stotz 08:41
so tell me the lessons that you learn from this?

Chris Franzen 08:45
Well, the lessons that I learned is that with a lot of money, you can buy a lot of advertising space, right? It doesn't necessarily mean that you the company, on a good financial foundation or with the future. And look, many years ago, everyone talked about green energy, right? We all knew the future is going to be green. So it looked like a fantastic investment. But again, you have to look at with whom you invest. What security Do you have, if the company defaults? And especially markets like China? Do you have very little regress? So there's very little investigation, you can do a research, right, if it's a new company. So that's a bit of an issue. Yeah, that was definitely the biggest learning.

Andrew Stotz 09:25
Yeah, well, let me Maybe I'll share some of the things that I took away. Yeah, I mean, just because a company can afford, you know, to be out there doesn't mean anything. You know, and that's that's a fascinating thing, because normally we would think if a company is successful, it's gonna mean something but even take a look at GE as an example when it crashed in 2008 crisis, you know, so yeah, I think lesson number one is big companies can fail and sometimes they can fail fast. A second thing is it. Second thing is that you know, with the stock market if you invest in the overall market, It's going to go down at times, but it's going to recover. But with individual stocks, you have the problem that some of them can go down and never recover. And you know, there's a few two ways to think about this from an investing perspective. The first way is well, okay, diversify, maybe own 10 or 20 stocks. So if one goes down, all right, another one's going up. But that's hard for the average person to manage 10 or 20 stocks. And we know that there's another way of doing it. And I've, I've tested this particular way, I was in Philippines, and I was advising a bunch of young people about how to invest. But the problem is, they didn't really have the fees on the funds were really high. And they didn't have like low cost ETFs. And so really, but the fees for trading stocks were very low at the brokers. So but if I advise, it was a group of about almost 2000 young people, if I thought if I advised them, then to start picking stocks, because the cost is low, and they could build portfolios. The problem I face is that they didn't know how to do that. And it may be bad advice to tell someone who doesn't know, or have an interest in picking stocks to pick stocks. True. So then I decided, well, let's try something interesting. Let's do it like an academic style studies. What if we look at the past 10 years, and we just randomly select portfolios of 10 stocks, and I did that 1000 times as if there was 1000 different people. And what I saw was that 1000 different outcomes over 10 years, some really high portfolio, some really low portfolios, and then the market average kind of in the middle. And then what I asked the question is, what if I put a stop loss of, let's say, 25%? And I reset the stop loss every year? In that case? What would it look like and that that distribution, that was a normal distribution, with some portfolios that did really well, and some of those really poorly, it actually reduced all the poorly won the poor, for performing portfolios almost up to the average. And what I learned in my, my advice to the young people there is that, you know, first you want to own probably 10 stocks in a portfolio any less, and you're not really diversified much more, and you're becoming a little bit more like just an index fund. But if you own a company,

Chris Franzen 12:24
also different industries, right. Also, industries. Yeah,

Andrew Stotz 12:28
but my study didn't even do that. I didn't even try to diversify it, I just said random. And, what I also said is, you know, to them is that put a stop loss in, reset it every three months or one year, and just say, I bought this stock at 100, put in maybe a 25%, stop loss. And even though your long term investor and you like the story and all that, it proved in the research I did for the Philippine markets, I've done it for other markets, too. And it generally proves it, but it it can add a lot of value just to get you out and then later, you know, you may buy that stock again, if it does well, you know, and yeah, I have a portfolio in China, that I've been running for a few years with Chinese stocks. And I can tell you, that is very valuable in China.

Chris Franzen 13:20
I mean, I did some fantastic investments in Chinese companies as well. And again, in the green market, like one company was producing East scooters, and some of them were producing e cars. I mean, they've done fantastically well, right. So I don't want to denounce the Chinese market by any means. Don't misunderstand me. But I also bought some companies like Alibaba, fear, terrible 25% down since I bought take EMP, but like as you said, I don't panic, I only play with money I can afford to lose, I don't wish to I diversifying. I started about a year ago with options and trading with options as well, which is highly volatile, right? There were days I was the happiest man on the planet. And I told everyone but you don't tell the next seven, you basically lost as much light within an hour.

Andrew Stotz 14:14
People love to talk about their winners. That's the value of this program. Yeah, Correct. Correct. That's correct. So 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? Let's just say they see that you don't need they're drawn in? Yeah.

Chris Franzen 14:31
Yeah. I tell you what, I started investing only in companies, but I understand the market. The industry, not market solid industry. I'll give you an example. I started investing in hotel companies and airlines because it's the cycle is very similar between the two industries. Our industry was hit by COVID. Probably the heaviest out of all industries that I mean, hospitality and the airlines. But there wasn't A lot of money to be made if I remember I went in about a year ago, when the airlines, the American Airlines, especially on the American hotel companies, they went down to 20 $25 a sheet that all back up up to 1790 hundreds, right? So if you know the industry and you know people want to travel again, it will bounce back. I bought the shears, people thought that I don't think they're gonna go back or it's gonna take years. They bounced back within two, three months was a lot of money to be made up, but I knew the industry right? So I took the risk. So to answer your question, only play in a field that you really understand. Right? It's your money at the end right?

Andrew Stotz 15:40
That's right. Great advice. All right, last question, what's your number one goal for the next 12 months.

Chris Franzen 15:46
My number one goal for the next month is establish the company I found it get a decent foothold, build a good reputation and hopefully that this whole COVID story is finally over sooner or later and the orcs are traveling again enjoying again we don't have to think about taking tests to cross the border they don't take a plane so that's my hope and my wish. Great Great Absolutely.

Andrew Stotz 16:17
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 just go there and join get all the free benefits including the massive discount on the six week valuation masterclass boot camp. As we conclude, Chris, I want to thank you again for coming on the show. And on behalf a Stotz Academy, I hereby award you alumni status for turning your worst investment ever into your best teaching. Thank you. You have any parting words for the audience.

Chris Franzen 16:53
I'm accepting that reward and it started raining so I'm actually almost happy to finish it even though I really enjoyed talking to you. And I hope it's not the last time if you come up with any other topic, please don't have your money. We'll be glad to talk to you again. And obviously if I'm in Bangkok next time, you never know.

Andrew Stotz 17:10
We're gonna have some coffee, and I love the backdrop now we start to see some mountain now behind you. Oh,

Chris Franzen 17:16
you see, yes. Behind me that's hotel that's kristiania is the hotel where I grew up the valley Silicon Valley. Fantastic. My uncle is running it now. So you look pretty good skiing like skiing spot. That's the place. I'm

Andrew Stotz 17:29
putting a link in the show notes ladies and gentlemen. I will. Alright.

Chris Franzen 17:34
That's it. Thanks, guys. Bye bye. Bye. All the best. Yep. Good.