Ep628: Shayne Heffernan – Stop Lending Your Money to Friends

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. Ladies and gentlemen arm on a mission to help 1 million people reduce risk in their lives. And that mission has led me to create the become a better investor community. In that community. You get access to the tools you need to create, grow and protect your wealth. Go to my worst investment ever.com right now to claim your spot fellow risk takers. This is your worst podcast hose Andrew Stotz, from a Stotz Academy, and I'm here with featured guest, Shayne Heffernan, Shane, are you ready to join the mission? I am. excited to have you on and you know, the funny thing about this is that, you know, we're actually not very far away from each other. But here we are on Zoom. So next time, we're going to have to have a coffee. Yeah, so let me introduce you to the audience. Shane Heffernan, he has a PhD in economics and has done several IPOs that have surpassed a market cap of a billion dollars. Shayne, take a minute and tell us a bit about the unique value you are bringing to this wonderful world.

Shayne Heffernan 01:27
As you can tell, I'm not yet another young fella. So we've had a lot of experience with things that go bad. Too much experience with things that go bad that that's a lot of things. Yes. So what we've learned is very much in line with what you said, what you need to do is you need to be able to do things and take risks, but constantly mitigate that risk and make better decisions. So when that becomes when risk becomes your, your highlight area. That's exactly what you focus on, you focus on mitigating that risk. mitigating risks is probably what we do. We love crypto, but we think it's far too risky. So we've got a bunch of other blockchain based assets that were all entities, big entities, governments, those types of things constantly in that business, but not carry that much as they do with the drawing of a monkey.

Andrew Stotz 02:33
What do you mean drawing in the monkey drawing of

Shayne Heffernan 02:35
a monkey or ape that will sell for half a million dollars or picture of a puppy that represents a main coin? We don't do any of those things is properly drawn up bonds from very large companies. Debt from governments debt from government, private joint ventures, things like that, that they would be a rated type things not as exciting as a main coin. But the risk is gone. Your return is virtually guaranteed the return is an excellent exciting return hundreds of percent a year it's not that it's all very boring stuff in line with the debt market. Yes.

Andrew Stotz 03:26
Yellow sometimes boring can be really great.

Shayne Heffernan 03:30
Boring is bestest, the exciting stuff. What makes it exciting, is the possibility you might lose everything. That's what makes it exciting. Yes, that's what people do when they gamble. It's exciting. You might lose everything you might win a lot.

Andrew Stotz 03:47
And that's the foundation of this show. So wow, let's now get into it. Now it's time to share your worst investment ever. And since no one

Shayne Heffernan 03:56
my worst investment ever has all of the ingredients of everything you should avoid. A friend of mine. His name was Andrew Forrest, a friend for 20 years. He came to me in Hong Kong in tears and over $6 million to say whose business he was been thrown out of his house within the next 48 hours. Bank was going to repossess his house. At the time he'd just been asked there was the CEO of Anaconda, which we had done some work on. I lent him $6 million. Everything about it was wrong. I did not do any of the due diligence. I didn't take time to do the due diligence. There was this big rush drop dead date, which is now one of my huge red flags. Somebody calls me and says you know I need money by tomorrow at three o'clock or the whole world ends. What I've learnt is tomorrow at four o'clock everything's still there. Hmm, that those urgent deadlines, I think are an enormous red flag. lending money to friends is also a really bad idea.

Andrew Stotz 05:18
Let's go back to when you did it like why? What was it at that time that you were thinking?

Shayne Heffernan 05:23
I was 20 years ago? $6,000,000.20 years ago was a lot of money. Yes, definitely. I was making a lot of money at the time. So it didn't sort of wasn't the end of the world. So there was a little bit of ego in there that I could show my friend that yeah, $6 million, or 3 million, they're in the safe in cash. Yes. So it's a little bit of ego. Dollar. A little bit of the, you know, the white knight here, I'll save you. Lots of those emotions came into the investment. I think those things that are emotional as well are always dangerous, with lots of emotions, emotion, charged. Investment, you really want to take your time and consider,

Andrew Stotz 06:15
and how long was it from when he came to you saying, hey, I need this. And he had it in his account.

Shayne Heffernan 06:21
Next night. Next night, just stupid. Yes. Just.

Andrew Stotz 06:30
And when did you realize like, God, that was a bad decision?

Shayne Heffernan 06:34
Well, during a phone call, I called Andrew after the company that I lent him the money and he rebuilt the company. The agreement we signed was on his next venture, yes, which happened to be Fortescue Metals. So Fortescue Metals listed went through the roof. I of course, was celebrating company had a valuation of about $10 billion. So Andrews stake was worth about $6 billion. And there, I was thinking I was a bee and I called him. And he said, Yeah, that wasn't the next one. The next one didn't work. That was the one after that. Yes. So I didn't even get my $6 million back alone did not make any money. I didn't get my $6 million

Andrew Stotz 07:18
back. And what was your reaction at the time?

Shayne Heffernan 07:22
I wasn't a happy fella. I wasn't happy for all but there was very little I could do. Because I hadn't done. I hadn't done a very good job of giving him the money. I didn't have very clear agreements, because we wrote agreements very quickly. I just transferred the money and gave him the other money. Or the cash money I just gave to him. Yeah, I've done a really bad job. So yes, initially angry at him. But within a day or so fairly angry at myself, when so stupid, yes. But it was a good lesson in lots of those things.

Andrew Stotz 08:11
So let's go through it. Let's say, you know, what would be the lessons that you learned from that?

Shayne Heffernan 08:16
I think one of my big red flags now guys who says I have to have the money by this date? Yes, I have, when I have will have to have the money by this date. That terrifies me. So if I'm going to do something, I know I'm not doing it till after that date. I want to see if that world is going to fall apart, I might be standing there ready with the money in my pocket if the world falls apart, but I'm gonna take my time. And see what happens. It's my experience so far, is that unless it's a real estate deal, where the bank has a deadline on if you don't pay us, we're going to take the property back. In which case, the best way to deal with us go directly to the bank and buy off the individual in the middle. So yeah, how a lot of friends you know, friends, you just you're better off, you've got friends, keep your friends, business as your business and try not to mix those up. Sometimes your business associates will become friends. But you still kind of let that cloud your judgment. And carrying, one of the big things I've learned is that carrying the debt of an old business, and this one does happen to us a lot. Where we've taken over a business we took one over recently, and that business has that we've taken over that business or we bought the assets out of that business, I should say we bought the assets out of that business. That's the end of my I'm done. There's the money, there's the assets everyone you owe money to is your problem. It would be wonderful if I could to go and pay all those people back, I'm not going to write because I didn't lose their money. I'm responsible for my money. And people have given me money. That's what I'm responsible for everyone who gave my business, yes. That's not my business. Yeah. Sometimes there's heartbreak stories there, and all sorts of things, but it's not your business and you can't do, you can't do those things. And carry that cost, like money is on the right investment.

Andrew Stotz 10:33
So maybe I'll share a couple of things I take away. I mean, my worst investment ever was somewhat similar, where a friend of mine had a good bit, he had a good business idea, I think, you know, it started off pretty good. And so I started kind of funding it. But it just it went, it went off the rails a little bit. And I kind of thought, like, yeah, maybe this is good. But then it just got to a point where we had to go to the next step. And it was going to take, I'd say, you know, maybe $3 million in, in, in marketing, you know, spend to bring it out to the world. And at that point, I had to ask myself, Am I feel comfortable going out to people I know and say, put money into this? And the answer to that was No. Yep. And unfortunately, it was at that moment that I realized I'd lost it all. Because there was no way to recover it. And I talked to him and just said, Look, I can't find this anymore. And I'm not going to go out and raise that kind of money. And it fell in. That was i It wasn't 6 million, but it was a pretty hefty number for me at the time. And I remember one of the things about it was that I was president of CFA society here in Thailand at the time. And, you know, there was a lot of shame in that, that I, you know, you know, I'm a smart guy, and all of this, and I've got a brave face. But you know, when we have big losses, when we make big mistakes, it's shameful, it's embarrassing. And part of what we do on the show is, is bring it out and talk about it. So there's a couple, couple of things I take away from your story. The first one is don't be a hero, you know, you can't save the world. And, that is probably the biggest takeaway. And it's such a seductive thing, as you start to build up money. And we're not talking about 6 million bucks, you know, you could have a friend come to you and say, Hey, I just need 10,000 To fix this situation. And you know, I'm going to be the hero and my ego feels good. And all that now. And one way that I like to look at that is I say that my obligation is ultimately to my family, and to my business partners to protect our wealth for our stuff. It is literally an obligation. And

Shayne Heffernan 12:51
corporate motto, Andrew might sound a little bit rough, but this is what it is. If you're on the team, you're on the team. And if you're not on the team, you're the enemy. That's our corporate motto, because we've got to look at that said we have to look at it as everybody else, not our business. We've got to do that. So yeah, that is our that is our corporate motto. Mistake those mistakes were made. Lots of mistakes only were ego driven mistakes. I didn't come from a wealthy background. So when I was successful for there was a period there where I was killed. Well guess I thought I was. I was the Sun King building. Versailles was all those stupid things, made all those mistakes. Yep, your ego. Ego gets in the way a lot, especially if you've had some success.

Andrew Stotz 13:50
So let's, let's now imagine a young person who is having some success and some was coming to him in this type of similar situation. And based upon what you learn from this story and what you've continued to learn. What acts what one action would you recommend that they take to avoid suffering, the same fate?

Shayne Heffernan 14:06
learn patience. Learn to be patient. Learn to be patient and get over yourself in terms of your ego. That's a very difficult thing to do. Yeah,

Andrew Stotz 14:22
yep. Great advice. Do you have any resource that you'd recommend for the listeners?

Shayne Heffernan 14:28
I read a blog write a book? Very few books, in particular. I referenced the book over time. Last week, what should I read? It's a book by Edward de Bono, and it's called I'm right, you're wrong. And what the book teaches you is that someone come to you and make the most amazing argument for something and you want to give him money. The problem is, and the problem one of the problems with our entire society is The people who make the best arguments and up in charge of everything, yes. But sometimes just because you make the best argument doesn't mean you're right just means you made the best argument. So you've got to be able to look beyond the argument, look beyond the powerful on emotional rhetoric and get to the facts, just the facts and say what's right and what's wrong. So that's a very important book.

Andrew Stotz 15:31
Who is the author? You said?

Shayne Heffernan 15:32
It would do by No? Okay. Got it. Lateral thinking man, was a very interesting book. And it's true, yes, the best argument is from the person who presents the best it. It's not always who's right, as we've seen with many politicians. Argument, some of the best speakers, and some of the people who can get a crowd riled up, doesn't mean their idea is right. It doesn't mean they're the person for the job, it does not mean that. And it's a shame, because we're seeing that move more and more in two central banks. I don't know if you remember. But in the 80s, in the early 90s, I had no idea who the Chairman of the Federal Reserve was, I had no idea what he looked like, he didn't get press conferences. And then we have Alan Greenspan started this. This Rockstar, we need to have the Chairman of the Federal Reserve, before that it was a fairly boring banker that you never heard from. So now you have all the Board of Governors talking and you'll have a finance minister from India was I've got a bad Bitcoin. I'm gonna do this, I'm gonna do that. And the reality is, that's a great thing to say, but you can't do anything. You have to prepare legislation that legislation has to be drafted, that legislation has got to go through a process. So even if you intended to do something, it's not happening for five years, six years, 10 years. So we have a lot of that now we're hearing more and more of the short sound bites, a product of the Twitter phenomenon, more and more small, powerful sound bites that convince people of things. The small sound bites, it's not enough for me to Twitter's the that's the hotbed of equity and crypto information is Twitter. Am I gonna get detailed investment analysis in 140? Characters? I'm not, I have to go read a lot of stuff. Yes, I have to go and read it. Hours and hours of things, to have that opinion. And that opinion based on a tweet.

Andrew Stotz 17:53
All right, last last question, what's your number one goal for the next 12 months.

Shayne Heffernan 17:57
Over the next 12 months, I'm teaching my boys here how to run a trade desk. So part of KFC on teaching our boys how to run a trade desk. I am hopeful that the boys do learn how to do that, because it's a wonderful way to make money that you can do from anywhere in the world and provides you unlimited freedom. And the freedom to do the things you want to do and being which is not anything anybody actually wants to do. Nobody just wants to be rich. They want to do things. Yes. So when we talk to people and say, I want to be rich or poor, why do you want to be rich, I want to live on the beach. So I want to do this on a trading gives you the opportunity to go and do those things. make enough money to enjoy yourself. Make enough money to enjoy yourself and do the things that you really want to do. Because the idea of I just want to be rich will never lead you anywhere. Good.

Andrew Stotz 19:13
Well, listeners, there you have it another story of loss to keep you winning. If you haven't yet joined the become a better investor community just go to my worst investment ever.com right now to claim your spot. As we conclude, Shane, I want to thank you again for joining our mission and on behalf of a Stotz Academy, I hereby award you alumni status for turning your best your worst investment ever into your best teaching moment. Do you have any parting words for the audience?

Shayne Heffernan 19:39
Oh, I guess just be careful. Be careful.

Andrew Stotz 19:43
Great advice. And that's a wrap on another great story to help us create grow and protect are well fellow risk takers. Let's celebrate that. Today. We added one more person to our mission to help 1 million people reduce risk in their lives. This is your words podcast host Andrew Stotz sang I'll see you on the upside.