Ep502: Atul Sethi – Remember to Write Things Down

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 risks but to win big, you've got to reduce it. Ladies and gentlemen, I'm on a mission to help 1 million people reduce risk in their lives. To reduce risk in your life, go to my worst investment ever.com today and take the risk reduction assessment I've created from a lessons I've learned from more than 470 guests. It's time you start building wealth the easy way by reducing risk. Fellow risk takers this is your worst podcast host Andrew Stotz from a Stotz Academy, and I'm here with featured guests a tool SETI, a tool. Are you ready to join the mission? Yes, I

Atul Sethi 00:50
am. Thank you, Andrew. Yeah, it's

Andrew Stotz 00:52
great to have you on board. Let me introduce you to the audience. A tool is the Founder and Managing Partner of Farnham tree, an investment advisor based in Bangkok, which is currently under pre licensing. After graduating from the University of Chicago, he spent 12 years at Credit Suisse in the Chicago, Singapore, and Bangkok offices. He started as a junior investment banker and has been a bank analyst in their tie equity research team. A to left Credit Suisse this year and is focused now on Farnam tree. And in fact, we have a little inside story that a tool was an intern with me in 2006. My goodness, so much has happened since Why don't you fill in a little bit of tidbits for the for the listeners about

Atul Sethi 01:44
yourself? Yes, sure. Thanks, Andrew. Yeah, summer of 2006. I very, I very vividly recall being an intern under you. It's it's city equity research in Bangkok. And thinking, My goodness, how did these guys wake up so early every single morning and do this? It was also during during the World Cup. And I'm a big football fan. So that decisions from back then whether it it stay up late and watch the games, or, or pay the price the next morning, when I entered the office, I had no idea at that time, that I would be that I'd be doing the exact same job much later in my career. But it was it was a great insight into the industry. And I also, I also remember how all of you in the office brought your A game every day. And that that that taught me that taught me a lot. Yeah,

Andrew Stotz 02:56
it's a good memory going back to and most of the some of the people at least that are in that office are still very close business partners with myself. You mentioned one song that we talked about earlier. He and I have worked together now for more than 20 years. And, you know, a lot of the people that were in that office have been friends for many, many years. So it was a fun time. And I think one of the things I loved about being an analyst and being a head of research is bringing the energy into the room and bringing it to the client bringing it to the salespeople into the team. And you know, I just loved every I love almost everything about the job of being an equity analyst.

Atul Sethi 03:37
Yeah, the first half of my career at Credit Suisse as a junior investment banker meant a very different life. It was a lot of it was about cranking out pitch books updating things as fast as possible. You learn you learn a ton a very steep learning curve, but it was I would say it was only after I moved over to equity research did I then get an appreciation for the analytical side of things and and what you can what you can learn from slowing down and and digging through so I very much what you say about that very much resonates with me I was lucky to be part of our the Credit Suisse's Thailand research team here which is you know, highly ranked at full of all stars and I learned I learned everything I know today. From them. Yeah, it's crazy how, how it's 2006. I was in I was an intern with you did the same job in the same city 10 plus years later And here we are speaking now, I've, you know, I've noticed from afar the work that you're doing in in helping people highlight, highlight lessons that people have learned, I've made mistakes along the way. So I hope to be able to contribute to that.

Andrew Stotz 05:19
Well, you are right now contributing to the mission. And 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 then tell us your story.

Atul Sethi 05:33
Sure, so this, the one instance that I, I remember and would like to share was around five, six years ago, when I did move, when after I moved back to Thailand, and I was based here and had a go at single stock investing. And, you know, my approach to finding a business to own was very much I tried to adopt, you know, the Buffett owner mindset to find a company with a big moat, huge competitive advantage. Everything that ticks, ticks, those boxes, so in Thailand, one one business where you get that is, is in retail, I won't mention the specific ticker, or the company, but I'll share in the convenience store format, there's really only one big daddy in Thailand. So for me looking at looking at that business, seeing the the monopolistic nature that that that they that they were able to operate with, very easy to understand business, high returns on capital, have been around for a very long time, seemed like a slam dunk to me at the time. Now, the reason that I highlight this as being a grave mistake was not not so much because I lost a ton of money on it. But rather because I glossed over one of the things that that is, is very important in assessing a business and especially if you want to take the view of a long term owner. And that's looking at the people and corporate governance. So in this particular instance, I did all the hard work fudging the numbers, looking at the financial statements and understanding the business model. But where my analysis was deficient is I ignored some red flags on corporate governance. There was an insider trading. Yeah, there was an insider trading issue that involved you know, involved one of members of senior management, that's something that should have caught my eye. And there are also other instances, either within that company or within the group where, where you see questionable corporate governance and decisions that make you wonder whether we as minority shareholders are being taken advantage of, or whether or whether our interests are being aligned with the promoters. So I realized that the hard way, I realized that the hard way, and then after I did, I decided that it's time to sell and you can do something else with your money. Find another business that ticks the boxes, I made another mistake on the way out, which is i, which is your classic anchoring bias mistake, which is, you know, I held I bought the stock at, say $100. And it was at 90, and I was telling myself, Oh, I'll wait until it goes back up to 100. And then sell. You give me a time capsule, I'd like to go back and slap myself for that. But it was a really, you know, so it's more than one lesson that that you end up learning I feel through experiences like this. And that one was you don't anchor to the price. This is an ownership stake in a business that's quoted at some price on the market. If you're, you know, if those funds are better off in cash, or better off in another business, it really shouldn't matter what your purchase price was. Hmm.

Andrew Stotz 09:46
So how would you describe that? Is that the lessons that you learn how for the listener out there?

Atul Sethi 09:51
Yeah, the two big lessons is one is not paying attention to the people. Yep. And The other one was suffering from, from, from, from a behavioral bias that is very easy for all of us to succumb under.

Andrew Stotz 10:12
Maybe I'll share a couple things. I know one of the things as an endless since 1993, particularly back in the old days when it was the only people that would talk to you, when you were an analyst in night in the early 90s, or mid 90s was, you know, the punters that were at the brokers. So the punters would come to the brokers, and they'd sit there all day. And so when an analyst would come down, you know, they'd want to ask you all kinds of question, but the most common question was, I bought this stock at 100, it's down to 40. Now, what should I do? And you know, the before, if you just ask them some more questions, they're going to tell you, I'm planning on waiting until it gets to 100. To sell. And, yeah, it's such a common bias. And I think that the lesson that I learned from all that is that I like to use Zero Based Thinking, whereas saying, Okay, imagine that, that that money, is his cash right? Now, would I deploy it into that company does that company as the have the best prospects over the next three to six months, and that's the way I tried to solve that particular problem. The other thing that you talk about corporate governance in Asia is kind of interesting, because, you know, in America, when you think about corporate governance, it's like a bad CFO or a bad CEO, where they're taking advantage in a public company or whatever. But when you think about Thailand, and Asia, you just think, you know, there's, there's corruption throughout many companies throughout, and there's families running almost all of these companies. And they're, some of them are siphoning stuff for before the company was listed, they may have done a lot of that. And so it becomes a lot more complicated, because it's a lot more difficult to find, like, a perfectly clean company. And, and therefore, you're stuck in a situation where sometimes you will ride with some sort of some sort of corporate governance issue that you may not tolerate, if you are investing in, let's say, a Western market, but you may kind of have to tolerate in, in a market like Thailand, or maybe China or whatever, if you say I never going to invest in anything where there's a corporate governance issue. It's very, very few. And that just is a dilemma that, you know, you made me think about. And, you know, there's, there's a lot a lot to it. So anything you would add to that.

Atul Sethi 12:54
I very much agree. I think it's a tough pill to swallow, to go, everything else is great. All the boxes are ticked. But there's something I can't get comfortable on. You know, I'm corporate governance and therefore it's, it's okay. I think when it's an item like this in, in more instances than not, it's not okay. Because the world is auction driven markets are super unpredictable. And investors are open up our open, open our we open ourselves up to so many different variables that can impact both business fundamentals and valuation. This is, this is, you know, to put this on top, I think, you know, can can really exacerbate the risks, whereby it's something you're not comfortable with, then it's much easier to just put it to the side because there's many ways to skin a cat as far as investing goes. But I think for one of the best strategies is the one that you can go to sleep at night soundly. With going to sleep at night, wondering whether you're going to wake up and see a headline of, you know, related to corporate governance is not it's not something that is not a position that I would like to put myself in. And I think that that's something that is not too difficult to avoid. If you do the work.

Andrew Stotz 14:40
Yep, yep. Yeah, in this case that you're talking about, which I happen to know about. It was so brazen. You know that. Yeah. It's hard to avoid. So based upon what you learned from this story, and what you continue to learn, what action would you recommend our listeners take to avoid suffering the same fate?

Atul Sethi 14:59
Yeah, I'd say the overarching lesson is to be objective. And I the way that the way that has helped me, and I think the way that can help, that help listeners or anybody, is to just just write things down writing, whether it's journaling, or just these are the reasons why I like why I don't like it, you can't lie to yourself, if you're writing something on a piece of paper.

Andrew Stotz 15:26
Excellent advice for the listeners out there, you know, having a notebook, having a place that you write it down, that you can go back to in reference, I think it's really, really great advice. So what's one resource that you'd recommend to our listeners, you know, that they could benefit from?

Atul Sethi 15:45
Well, I spoke a bit about biases. And, and, you know, the whole, the behavioral side of, there's a series of investing books called The Little Book of something, there's one, that's the little book of behavioral investing, written by James Bond tear. That is, that is my jam. You know, the anchoring bias that I spoke about, that's one of several things. It's a short book. And I that would be like the one thing that the one resource that I would highlight that's very easy to digest, and relatable. For anybody interested in these subjects. We have, I have a reading list up on our Farnam street website, where, you know, given our current status and process, in applying for license with the regulators, there's not too much information on it. But there's a reading list there of books and some resources that have greatly helped me and I would encourage anybody to look at that. James mon tears book is there. And so is like Peter Lynch, with the greatest takeaway, or lesson that I learned from Peter Lynch and his teachings is, invest in what you know. And that ties back to that ties back to being able to sleep well at night. Because if I'm, if I'm invested in you, I don't know some hydrogen fuel, if some new technology that sounds really, really sexy, but if I had no idea how it works, that's, that's that's a recipe for disaster. Hmm.

Andrew Stotz 17:37
Yep. Great advice. And we'll have a link to the website in the show notes. So you can go and check out the book list and reading this, I think your recommendations are spot on. And Peter Lynch, the thing that always got me about Peter Lynch, was it like, if you think about Buffett, or if you think about Benjamin Graham, they were kind of focusing on one thing, you know, and things like, you know, buying things at a deep discount and get Buffett started to change from that high quality companies. But Peter Lynch just looked at anything. And and he built this eclectic portfolio of things that, no, I mean, you could look at Buffett's portfolio and say, yeah, he's got a very different things, Coca Cola, and he's got a train company, but with, with all of those have the same thing in common high quality brand, a moat, a really high gross margin, but Peter Lynch was just like in anything, and if it was just an uptick in an industry, he may ride that for three years, and then eat out. So he was really, really amazing. So great, great recommendations there. All right, last question, what's your number one goal for the next 12 months?

Atul Sethi 18:47
Oh, would be to, to get our licensing, to get our licensing set up, get our structure and everything ready. So that we can share our service with, you know, with investors in Thailand, and hopefully present a solution or a way of, of investing and managing portfolios, that addresses some of the problems that I personally faced, for the most of the last decade, being in this country. So I'd say that that's our main goal for the next 12 months. But, I would say outside of that, of that, you know, strictly professional. Vision would be to continue learning and you know, continue the reading it, it never stops. So, such Just keep on, keep on hearing about.

Andrew Stotz 20:04
Yep. That's exciting. So yeah, keep learning. That's the challenge for all of us. I mean, every single episode I do, I learned more. I did my PhD when I was 50 years old, and I'm constantly reading. And nowadays, you know, you find yourself reading medical research to understand what's happening, all of that stuff. So keep reading, well, listeners, there you have it another story of loss to keep you winning. If you haven't yet taken the risk reduction assessment, I challenge you to go to my worst investment ever.com Right now, and start building wealth the easy way by reducing risk. As we conclude a tool, I want to thank you again for coming on the show. And into our mission. 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?

Atul Sethi 20:59
Oh, thank you. Thank you very much for having me. I, this is a bit like a blast from the past. But no, thank you, thank you so much. And I am and has been a consumer of your podcasts and the content for a very long time. And I've learned a lot from that as I mentioned to you before we started the breadth of material and and the examples that you have is truly awesome. So I hope more and more people get access to it and learn from it.

Andrew Stotz 21:39
Boom. And that's a wrap on another great story to help us create, grow and protect our wealth. Remember ladies and gentlemen, this podcast is about one guest. One story. One mission to help 1 million people reduce risk in their lives fellow risk takers. This is your worst podcast host Andrew Stotz saying. I'll see you on the upside.