Ep64: Hansi Mehrotra – Don’t Let Overconfidence Bias Lure You into Concentration Risk

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Guest profile

Hansi Mehrotra runs the financial literacy and investor education blog, The Money Hans. She was named in LinkedIn’s inaugural global 10 TopVoices for Money & Finance in 2015. Hansi was named in the LinkedIn TopVoice and PowerProfile for India in 2018 and the year before, the same site’s PowerProfile for Finance in India. Her profile on that site has more than 289,000 followers. Hansi has over 20 years of financial services industry experience, mostly in online delivery of investment research and consulting for the wealth management industry across the Asia-Pacific region. She set up and led the region’s wealth management business for Mercer’s investment consulting division in Australia and Singapore. Hansi has also led a number of projects in India, including the design of investment options for the National Pension System. She holds a BA from the University of Delhi, a graduate diploma in applied finance and investments from the Securities Institute of Australia (now FINSIA), and is a Chartered Financial Analyst (CFA).

Humble beginnings drive search to master money

  • Hansi completed her degree from the University of Delhi by correspondence because she was living in a very small town in India.
  • Her desire to learn finance was due to “a lack of money”. Also, her father had lost a lot of money and she wanted to know why.
  • While earning her graduate diploma in Australia, she worked as a part-time waitress.
  • Hansi’s drive and skill for self-study came partly from her father, who urged her to help her less academically inclined brother with his school work.

Married team become agribusiness investing gurus

  • Hansi and her husband started a joint-venture company to research tax-effective agriculture schemes.
  • They became well-known for writing the best research reports on how to reap tax benefits from planting trees, such as in orchards, vineyards, and for pulp and paper.
  • She joined Mercer and convinced them to employ her husband as a consultant to research agribusiness as an asset class globally.
  • After they both read Rich Dad Poor Dad, by Robert Kiyosaki, they became very interested in passive investments and income streams.
  • Thinking about starting a family, they discussed Hansi leaving work and needing support while raising children and managing the home.
  • With the idea of creating financial stability to raise a family, they invested their combined life savings into the same top-rated agribusiness schemes that they put their clients on to.
  • Investments included pulp mills in Tasmania (specifically Gunns), orchards, grapes, stone fruit, and a big outlay in a unit trust in red-wine vineyards in the Barossa Valley, South Australia (premium wine-growing country).
  • The vineyard investment doubled its value in 12 months and other agribusiness stocks were doing well and achieving high returns, “so we were riding high”.
  • Hansi and her partner were then re-investing profits back into these schemes they were earning a return of up to 15%.

Series of unfortunate events gut investments

  • “All of it got wiped out.”
  • All three investment areas were hit with either environment factors (hail storms), foreign-exchange losses or regulatory environmental impact issues, which meant all money put in was lost.
  • Because all the entities were unlisted companies, they could not recoup any funds.
  • The end result was the end of their plans to have children.

 

“Learn from mistakes and just because we didn’t have data doesn’t mean it never happened.”

Hansi Mehrotra

 

How about emotional costs and strain on marriage

“Tell us about the emotion between you and your husband as you were going through this – how did you manage to keep the relationship strong, because a lot of times going through a financial crisis can tear people apart?”

Response

Although they were both trained analysts, they forgot that what they had preached to others about investing applied to themselves.

Hansi also feels great regret for letting someone else (her husband) convince her to forget all she had learned, especially about diversification and other risk management factors.

Such situations put a lot of stress on a couple and her marriage was no exception because they never accumulated the finances sufficiently to have children. “Now it’s too late.”

Lessons Hansi learned

  1. Diversification should never be forgotten
  2. Financial failure can have an immense impact on family relationships
  3. Overconfidence can lead to extremely poor decisions
  4. Managing risk and sizing positions is key
  5. Be very wary of investing in unlisted companies
  6. A newfound respect for history, which is one of the best things you can study. Analysts usually list risks they have actually seen in the past. Hansi mentions at this point,

 

“What we don’t see coming as analysts are things that we’ve never seen before because we didn’t look far back enough.”

Hansi Mehrotra

 

Andrew’s takeaways

The team at A.Stotz investment and Andrew have identified six core mistakes that investors make. There was no problem with the most common error, No. 1: Failed to do their own research, which clearly Hansi and her husband had done. However:

  1. Home-country bias came into play. People (therefore investors) by nature are biased to do the things they are most familiar with, that are closest to them.
  2. Failed to properly assess and manage risk. Risk, as he often says, is a separate item. The problem, in this case, was more about managing risk and sizing the position, because if you size your position small enough relative to all your other assets, you can manage well. Even illiquidity you can live with if it’s going to come back or you can eventually exit, but if you don’t size your position your investment is more or less dead.

One action to avoid the same fate

One answer is a system Hansi has developed, a simple color-coded concept called The Money House, which is to divide overall wealth into buckets:

  1. Build a foundation (Red) – Things you can’t afford to lose – “Don’t touch this”
  2. Build growth pillars (Blue) – Things that keep growing in the long term, such as investments in blue-chip assets and investment for retirement
  3. Freedom slab
  4. Fun roof – Investments you can walk away from, higher risk, higher return

You decide how much you want to put into each area.

No. 1 goal for the next 12 months

Hansi wants to turn her 200,000-plus LinkedIn followers into a million, as she is committed to spreading the message about financial education.

Final words from Hansi

Use common sense and read a lot, especially history. That will help with more careful consideration in one’s life and investments.

Final words from Andrew

Build a strong foundation with your wealth and have your growth pillars and have a fun roof for future savings.

Connect with Hansi Mehrotra:

Andrew’s books

Andrew’s online programs

Connect with Andrew Stotz:

Further reading mentioned:

About the show & host, Andrew Stotz

Welcome to My Worst Investment Ever podcast hosted by Your Worst Podcast Host, Andrew Stotz, where you will hear stories of loss to keep you winning. In our community, we know that to win in investing you must take the risk, but to win big, you’ve got to reduce it.

Your Worst Podcast Host, Andrew Stotz, Ph.D., CFA, is also the CEO of A. Stotz Investment Research and A. Stotz Academy, which helps people create, grow, measure, and protect their wealth.

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