Ep659: Bill Blain – Always Sell Fast in a Difficult Market
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BIO: Bill Blain is a well-known financier and commentator on financial markets, contributor, and editor of the Morning Porridge.
STORY: Bill loves airships, and many of his investment mistakes involve airships.
LEARNING: Ignore the worst and the best estimates and focus on the middle consensus. In a difficult market, a bid is a bid, and you’ve got to sell fast.
“The market has one objective only; to inflict the maximum amount of pain on the maximum number of participants.”
Bill Blain is a well-known financier and commentator on financial markets, contributor, and editor of the Morning Porridge. His day job combines his role as Strategist for Shard Capital, the leading investment management firm, and heading the firm’s Alternatives Group – financing Private debt and equity deals and direct lending transactions. His clients include sovereign wealth funds, hedge funds, insurance and pension managers, credit funds, and family offices.
Worst investment ever
Bill absolutely loves airships, and many of his investment mistakes—unsurprisingly—involve airships. When Bill was relatively young, he discussed with his grandfather about going to Dundee. He told him about reading about it and his interest in airships. Bill’s grandfather encouraged him to invest in that airship. Billy took his grandfather’s advice and put his pocket money into the airship company. He lost all his money when the company folded a year later.
A few years later, as a young banker again, the airship industry came up, and Bill thought investing in it would work this time. So invested and lost a lot.
About 10 years ago, there was yet another airship. Bill tried to invest in it, but somebody else beat him to the race since it was a private equity deal. The guy who beat him in the bid lost all their money.
Over time, Bill has also made other poor investment decisions, like buying UK bank stocks just before Northern Rock went into meltdown. He also once did lots of serious analysis and market research and concluded that all the world’s growth would be in Southeast Asia. So he piled into Chinese stocks a couple of days before Ali Baba and Tencent were closed down.
Another big mistake Bill made was with Tesla. He learned about Tesla very early on and thought it was interesting. He even invested in it. But his confidence in the stock evaporated because he let it get personal.
Bill was distraught by the behavior of Elon Musk, particularly his attitude towards a British cave diver trying to rescue children stuck in a cave in Thailand. He felt the way Elon treated that diver, accusing him of being a pedophile, was unforgivable. So Bill decided to exit Tesla at that point. He decided for all the right moral reasons, and it cost him millions in the foregone upside that he would have made if he had held on to the stock.
- Markets are not clever themselves. They’re not artificial intelligence. All they are is a voting machine.
- The market has one objective; to inflict the maximum amount of pain on the maximum number of participants.
- Things are never as bad as you fear but seldom as good as you hope.
- Ignore the worst and the best estimates and focus on the middle consensus.
- In a difficult market, a bid is a bid, and you got to sell fast.
According to Bill, a phone is the best resource for understanding what’s happening in markets and what you should do. Bill recommends calling people, speaking to them, and asking their opinions.
No.1 goal for the next 12 months
Bill’s number one goal for the next 12 months is to go skiing and spend much of the summer sailing his boat with his wife and puppy. And if his kids also come along, it will be even better.
“Eat the beans, cool the pie, and eat that porridge.”
Andrew Stotz 00:00
Hey hello fellow risk takers and welcome to my worst investment ever stories of loss to keep you winning in our community we know that the winning investing you must take risk 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 so join me go to my worst investmentever.com and sign up for our weekly become a better investor newsletter where I share how to reduce risk and create grow and protect your wealth. Fellow risk takers this is your worst podcast host Andrew Stotz from a Stotz Academy, and I'm here with featured guests Bill Blain. Bill, are you ready to join the mission?
Bill Blain 00:37
Oh, yeah, Sign me up.
Andrew Stotz 00:39
All right, here we go. And I want to introduce you to the audience. Bill is a well known financier and commentator on financial market markets contributor and editor of the morning porridge. His day job combines his role as strategist for shard capital, the leading investment management firm and heading the firm's alternatives, group financing private debt and equity deals and direct lending transactions. His clients include sovereign wealth funds, hedge funds, insurance and pension managers, credit funds and family offices, Bill, take a minute and tell us about the unique value you are bringing to this wonderful world.
Bill Blain 01:19
Oh, that's a great question. What do I bring in this unique? What's my USP? As they say? Well, the first thing is, I'm old enough to not really give an Shi T anymore. You know, just get on with it and tell it as it is. The second thing is which other people have told me as I'm one of three people in the world, who really understands the bond market. Now the problem there is that of the others, one of them's already dead, the other one's in a lunatic asylum, and I've quite forgotten everything I've ever learned.
Andrew Stotz 01:52
Well, there's a uniqueness. It's in there somewhere. Yeah. We have to just
Bill Blain 01:58
do try and do try and tell it as it is, and try and analyze markets with a sense of, yeah, really. But yeah, and that seems to work better than trying to persuade yourself to believe all the hype that one reads these days.
Andrew Stotz 02:16
I like what you said about I really don't give a sh it anymore. Because I feel a lot like that. In fact, I have a new way that I start every speech that I give this morning at 7:38am. I was at an event in Thailand on a panel and they asked me to participate along with some other distinguished speakers. And I always start my thing is I'm going to start with an apology, because I am going to offend you and piss you off. And I'm going to just apologize for that right now, before I get started. And I just, you know, I just have so much more. I see so many things. And I feel like I got to speak up for some of the nonsense things that I see out there. And so I just don't give a shit anymore. So I feel the same way.
Bill Blain 03:01
So sometimes it's a good attitude to take. But yeah, at the same time, I have expensive hobbies to fuel. So I need to keep working, which is great fun, because there is nothing quite as fascinating as global markets. Yeah,
Andrew Stotz 03:18
exactly. And tell us a little bit about morning, orange and how it took over.
Bill Blain 03:22
Okay, yeah, Blanes morning porridge. That's, that's, that's a great story. Because back in 2007, I was an investment banker working for one of the leading UK investment banks, I'd kind of got told I was gonna get major promotion. And I was a surefire for the job. And I was told, compiling a list of what my new department would look like. And of course, in that situation, you figure out the three people you need to get rid of the problem was the guy who actually got the job, guess who was top of his list. So that was me. So I was out the door. And I was wondering what the hell do I do next, I already had this great idea for a hedge fund. And this is 2007, just before the global financial crisis kicked off, the defaulted northern near default, and liquidity run on Northern Rock, a British bank. And our plan was to go into leverage credit. If we'd done it, I'm sure we'd all ended up in jail. But as the market suddenly turned against all the financial institutions, the team that had assembled for this hedge fund, we realize that if banks were going to get bailed out has turned into be the case there was great value. So we came into we got a trading position built up we were talking with the bank selling them back their own capital, raising our own it turned into great fun. And I discovered very quickly that I went from being an investment manager, an investment banker running origination into becoming a hedge fund manager which never really happened. And I found myself as a bond broker, which meant I had to find things to talk to clients about every morning. So I started writing a morning commentary to send to them. I think it started off with about 30 of them. And I was thinking of something unique to call it and I thought, well, what's my, you know, people are gonna get this over breakfast. I'm a Scotsman. So let's call it the morning porridge. Well, no, the morning porridge has about 12,000 subscribers. It has a good number of them who actually pay for the thing, which is great, because that covers the web hosting and the email costs and everything. And 90% of the readership or market participants, mostly professional, but the rest includes some major politicians on both sides of the pond, analysts outside the financial markets. And overtime, I find it fascinating the feedback I get from that forums, a lot of the real day job stuff that I do, which tends to be outside stocks and public bonds, but in private debt and equity, where we're looking for real investment opportunities. My big thesis of the last 12 years has been just how distorted markets have become because of monetary experimentation. So I tend to look for really returns and that's been great fun. So that there you go, Andrew, a very quick run through of what the morning porridge is. And most days I try and find something to comment about. I tell it exactly as it is. I always whenever I'm using sarcasm and came to my American chums by putting in a sarcasm alert because I knew Americans don't understand sarcasm. So I always put that in. And I love it when I get trolled by Americans calling me, you know, no, nothing or dumb because I dare to suggest things about their beloved former president's financial acumen. It's always great fun and you get brickbats thrown at you and your shake him off.
Andrew Stotz 07:09
Fantastic. And for the listeners out there, I believe we go to www dot morning. porridge.com. Is that correct?
Bill Blain 07:17
Yep, that's right. More, just call up morning porridge.com, you'll find it. You can subscribe for free and you get three free articles per month. Or you can summon you can check out the enormous amount of 10 pounds, which I think is about 50 cents these days to get it delivered fresh, warm and toasty to your mailbox every day.
Andrew Stotz 07:42
You'll be fully nourished every day as you start your day. Well, now it's time to share your worst investment ever. And since no one goes into their worst investment thinking will be tell us about the circumstances leading up to it then tell us your story.
Bill Blain 07:54
Okay, well, I think the great thing about making mistakes as an investment is there supposed to be learning processes, you know, failure makes us stronger because we learn. That's not true. I keep making the same mistakes. My particular weakness is for airships. I absolutely love airships, I think the idea of massive great big renewables floating over the world carrying cargo and being able to hover over disaster sites, dispensing supplies or moving logistical logistics around the globe or even people out for a cruise I think fantastic. So when I was relatively young, I remember discussing with my grandfather excuse to go up to Dundee once a month, and I was telling him about I'd read something about it. And he said, you should invest in that Billy, and sort of what does that mean? And he explained it, I think I put my pocket money into the airship company and lost a lot when it folded a year later. A few years later, as young banker again, airship industries came up and I thought it's going to work this time. So infested lost a lot. And then I think it was about 10 years ago, there was yet another airship thing and this thing was called the Flying Rs, because it looked just like an enormous bottom. It was to the renewables strapped together, hence the flying bottom. And I invested or I tried to invest in that, because it was a private equity deal actually tried to put the funds into that. But somebody else beat us to the race. And guess what, they lost all their money, and that was so airships has been a bad one, as some of the other ones is timing, you know, buying UK bank stocks just before Northern Rock went into meltdown. Subsequently, some of them come back, but many of them haven't because they remain permanently scarred by that. Or, you know, doing lots of release serious analysis and market and concluding that all the world's growth is going to be in Southeast Asia. And then piling into Chinese stocks a couple of days before Ali Baba and Tencent are closed down with check mark getting arrested or put in seclusion and losing significant amounts, then it's a mistake to think that we learn, always learn from our mistakes. But clearly there are lessons. Another big mistake, and I'm sorry not to focus on one thing and do but another big mistake has been Tesla. I saw Tesla very early on, I thought, Whoa, this is interesting. I like this, I invested. I think for all the right reasons that I saw that electric vehicles were going to become very important. I immediately appreciated that then narrative about how important information and data was going to be in creating the possibility of auto driving. But then my confidence in the stock evaporated. And it was mainly because I let it get personal. I was very upset by the behavior of Elon Musk, particularly his attitude towards the British cave diver who was trying to rescue the children who were carving a cave in Thailand. And I thought the way he treated that divert, accusing him of being a pedophile was absolutely unforgivable. And then the way that it looks like he bought the courtroom to ensure that you didn't have to pay damages on that, I just thought it was disgusting. So I made the decision. To exit Tesla at that point, I made the decision for all the right model reasons. And it cost me absolute millions, literally millions, in forgone upside, that I would have made about well held on to the stock. Now I have kind of got my revenge on that. Because what I did last year was I bought a trade, which is a three times levered Tesla downside. So for every dollar that Tesla has tumbled, I've got $3 back, and that has performed nicely. But not as much as I would have met, if I could have just as sucked in my pride and invested in evil. That is Elon Musk, there you go. That's another example. Over my life, I've tried to sort of record in my mind all the investment mistakes that I've made. And that actually forms part of the morning porridge. And I've got this thing called Blaine's market mantras. And some of them are, you know, they're based on got that one wrong or snack food. So if you want Andrew, I'll be happy to go through some of these things.
Andrew Stotz 13:04
In Uganda, if you got one or two of them, we'd love to hear it.
Bill Blain 13:07
Well, the first thing you need to know about markets is that, you know, markets are not clever themselves. They're not artificial intelligence. All they are is a voting machine. But it's a voting machine that has a soul. And from that, so the market has one objective and one objective only. And that is to inflict the maximum amount of pain on the maximum number of participants. Now, if you just think about that for a moment, that is what always happens when we have the kind of insane market rallies that we had over the 2010 22 period. Now, if you just think about that time, in 2010, the US economy was worth GDP 15 trillion. Today, it's worth 25 trillion. That's an increase of 40%. That's pretty good. Unless you think the stock market has risen in that period.
Andrew Stotz 14:10
That's a good question. I'm not sure tell. Tell us
Bill Blain 14:14
270%. Yeah. So the stock market has risen in value seven times nearly seven times as fast as the value of the underlying economy. How does that possibly make sense? Why is nobody turning around and saying, I think those stock markets overvalued. Well, the reason for that is this whole thing about inflicting the maximum amount of pain on the maximum number of participants, it's all about persuading them to join the frenzy. And you do that by Premier promoting football that fear of missing out. You do that by persuading them that you know, auto driving is going to be real no way up here in the UK, we can even make our trains run properly. And trains are basically a single, well, two lines of metal going from A to B, and we can't make that work. How are you going to make cars work driving themselves? Come on?
Andrew Stotz 15:18
Yeah, we're having a trouble with trains in Ohio right now too. So we they need training?
Yeah. So that's one of the first things.
Bill Blain 15:28
I think one of the second mantras that I think's worth bringing out is one that I think sums up the way that the market goes from best to worst so quickly. And my mantra there is things are never as bad as you fear, but seldom as good as you hope. And I think a good example of that is, you know, we all predict that when interest rates started to rise, everyone thought, this is the end of the world. It's going to be the end of stock markets, everything's going to be horrible. But you know, what actually happens is, you do get a downturn and then the economy recovers. I mean, what you need to look at is ignore the worst and the best estimates and focus on the middle, the consensus where often there is no consensus, because you tend to find that in the analyst community. Well, stock market analysts will always pile into the buy, buy buy side, because hey, they got vested interest in selling stock. And their origination departments are wanting to lend that client lots of money and, and be their stock manager, that kind of thing. So you got to discount much of the Caribbean should reread. Remember that 90% of bank analytics or research house analytics is written to be read by compliance officers. The real secret of the world is to go out and do your own due diligence, use your own common sense, and reach your own conclusions. Problem is, if you're an idiot like myself, you'll often reach the wrong conclusions.
Andrew Stotz 17:15
i You remember, I remember when I started in 1992, and there were no compliance officers?
Bill Blain 17:22
Yeah, no, I remember. I mean, my career has taken me through a couple of American banks. The best firm I've ever worked for was Bear Stearns. And that was in I think, the early 90s that we met our first compliance officer. And he was actually a great guy because he saw his role as compliance officer was to enable us to do whatever we wanted, legally. If I speak to my mates who remain in banking today, they now know that they're all the compliance officer is to stop you doing anything illegal or legal, just in case it might prove illegal.
Andrew Stotz 18:03
I remember my first boss, John Shrimpton, who later went to set up dragon capital with Dominic Scrivens, in Vietnam. About five years ago, I was talking to him and I said, So what are you what are you investing? And he says, I'm long compliance.
Bill Blain 18:19
That's not a bad one.
Andrew Stotz 18:22
And then they still got a long way to go. You got another you got another tidbit there.
Bill Blain 18:27
Let's see. Well, I've actually got my list out here. Even some great ones in a difficult market a bit is a bid and you should hit it harder than faster than the proverbial redheaded stepchild. I'm not sure you're allowed to see proverbial redheaded stepchild anymore. But in a difficult market, you've got to sell and you got to sell fast. It was round about the time that Lehman collapsed. And there was one of my clients was big holder of highly leveraged notes issued by what we called a special investment vehicle. And it was clear that this firm was going to be in major trouble because of its leverage and inability to refinance. And he asked me for a bid in this position and I told him Look, I think I can get rid of them. At 90 Give me the firmado 90 I need more than 90. I said look, I can't the best bid that I'm gonna get through these as 90. I said Ah, no, I cannot sell that put the phone down me and 10 minutes later he calls me up so they'll give bill I will take nine to spill their bids at I cannot take 80 Put the phone down on me again. He calls up half an hour later. Bill I need to sell them at 80. Phil the trader said well, I need to check the bid. Bid was down to 60. He eventually ended up selling them at 12 because he just chased that bid it down and down again. So the mantra that follows that is the first cut is probably not the deepest.
Andrew Stotz 20:12
As Ron Stewart says, which I don't even think that was originally his song was that
Bill Blain 20:19
all I remember is the Rod Stewart, which was very good. And course Rod Stewart, Scott Smith as well. So it's bound to be the best version. Ever. The First Cut Is the Deepest. It's always better to take that first cut, and be able to walk out rather than wait for it to hit you and crawl out.
Andrew Stotz 20:39
I thought I thought you were gonna say to him, when you call back and says, you know, when you said ADA said, when he said, Okay, I need a better price. And you're gonna say, how about 50?
Bill Blain 20:50
Okay. Yeah. Well, there's, you know, there are other things you learned in the markets. And one of my early experience back in the early 80s, when I joined an American, my first American bank, was getting a masterclass in how to handle a bid from our floating rate note trader. And he was just going out for lunch. And, remarkably, he left me in charge of the desk. And he told me if client X bowl phones up, whatever you do, do not by the Bank of London, or Stan or whatever it was bonds. So okay, I'll make sure to do that. Half an hour after George went out for lunch. I got a call from banker London, Stan asking if or asking the client asking if I wanted to buy the banker lawn lawn to understand barns. Now in those days, you had to give a price. So I gave, you know, a really lowball bid based on what I could see on the then only screen we had, which was a writer screen. And the bid was something like par. So I bid 99. And guys are okay, right, fine. And so George got back from lunch. And I told him my attempts is great, right? He gets on the phone and says, Hi, client texts, like, Hey, Bill just told me that Yeah, look, I absolutely love these bonds, I definitely want these bonds. You know what, I can buy them right away. Now at 98. They got her husband tastic. And he sold it to the guy completely forgotten. I'd been 1990 10 minutes before. So it's just that is the way markets work. They are not rational?
Andrew Stotz 22:35
Well, it's a lot of good lessons. Maybe I'll wrap up by asking you the question is, what's a resource that you'd recommend, obviously, morning porridge as a start. But are there other things that you know, think about the things that you learned from over the years? And what are some resources that you'd recommend?
Bill Blain 22:53
Oh, they're the best resource for understanding what's going on in markets, on what you should be doing is something that nobody else seems to use these days. And it's called a phone. And you actually call people and speak to people and ask people what their opinions are. And if you do that, and you watch whatever screen you want to, I mean, a couple of years ago, I gave up using Bloomberg not because I don't love it, the information is fantastic, but Dan Durbin, gonna pay that amount of money for what I can learn just by talking to people. And you know, it's not me, that's clever. It's the other people I talk to who are clever. They're the ones that give me the insights that make the markets work for me. So my most important tool, therefore, I'm currently an iPhone.
Andrew Stotz 23:49
That's great advice. I mean, are you noticed that the young generation does not like to call, and they feel like they're disturbing and stuff. And I always tell young people or anybody as like, Call me anytime, because I turn off my phone when I go to sleep. So you're not going to wake me up? And if I'm in a meeting, I'm not going to answer and I'll call you back. But yeah, it's a great point. We missed the just that chat. And I think it's a great thing. We end up being relying on email and all that stuff. But you know, just pick up the phone.
Bill Blain 24:17
Well, it maybe this is a clue for younger folk. I mean, I do use teams quite a lot with some of my clients. And there's that direct interface on clean on teams, which is very, very useful. And you've just reminded me I need to speak to my compliance department about how we use that information.
Andrew Stotz 24:38
It's one of the things that the difference between a phone and a video now it's so easy to do it many. About two years ago, I really started thinking about the people that are close to me, that are in kind of my inner circle that I you realize life goes by and you know, you're not in touch as much and you know, we're busy and all that so, I basically reach out To those people and say, let's do a video call, you know, this month or next month and catch up. And I'm pretty good at that on a quarterly basis to make sure that I'm looking face to face with all of the people that I really care about, or want to talk to, not just in family, obviously, but in business and all that. And, you know, it's, it's never disappointing. So that would be a little bit of a tip from my from my side about for the listeners is, figure out,
Bill Blain 25:28
I noticed convinced Andrew about the video call. I often find that clients tend not stick the video on because they know it's gonna be a fairly short call, we do a video call, sometimes, yeah, we have proper ones, but they can get too big. Nothing is better than the face to face meeting. But you know, that isn't always going to happen. Today I was going to be having this call from my office in London. But because both trains were canceled this morning, that would have got me there in time for something ELSE ended up having to do a call here and then so I'm staying at home to have this call with you. And I'll go in the this afternoon for a meeting. But face to face time with colleagues, especially and with clients is absolutely vital. But I still think that you know, the immediacy of Hey, Brian, what do you think of this? Yep, that is absolutely critical in what we do.
Andrew Stotz 26:25
That's the way we used to do it. In the old days in 90 when I was starting to be an analyst in 93. That was pretty much the only way.
Bill Blain 26:33
Yeah, well, back when I started doing markets, we were still sending small children not chimneys, but and it was good for them.
Andrew Stotz 26:41
He go, good health. Alright, last question. What is your number one goal for the next 12 months?
Bill Blain 26:50
I'm not going to say something silly. Like I've got this fantastic deal that I want to get closed. And I think it's going to be the best deal in history. My number one goal for the next couple of months is to go skiing this weekend, and to spend a large part of the coming summer off sailing my boat with my wife and my puppy on board. And if my kids come along as well, it will be even better.
Andrew Stotz 27:12
Fantastic. Where do you go sailing?
Bill Blain 27:15
Well, I live on the south coast of England, near the in between the towns of Southampton and Portsmouth. It's a village called Hamble. It's the center of UK sailing. We'll just snip out here in the morning and go sailing around the Solon place across places like cows. But we also sail over to France and right the way along the English coast. We've been right the way down the French coast. And every so often I do a race that goes to the tip of Ireland. It's called the Fastnet race. It's great fun if you're like being out at the sea getting rolled around and soaked. And you like the sensation of ripping up 50 pound notes and old cold wet shower. I mean, yes, sailing is great fun. But you know, I absolutely love it. It's been my passion ever since I was a kid. And if there's one reason I work, it's so that I can keep buying books.
Andrew Stotz 28:09
Well, much better than airships, I think.
Bill Blain 28:12
Yeah. But that said I have invested in airships made no money. I have never invested in any yachting businesses because I know they never make money.
Andrew Stotz 28:24
Well, listeners, there you have it another story of loss to keep you winning. Remember, I'm on a mission to help 1 million people reduce risk in their lives. If you've not yet joined that mission, just go to my worst investment ever.com And join the free weekly become a better investor newsletter to reduce risk in your life. As we conclude below, I want to thank you again for joining our mission and on behalf of East Arts 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?
Bill Blain 28:55
Yeah, eat the beans and cool the pie and eat that porridge.
Andrew Stotz 28:58
And that's a wrap on another great storage story. See, I am the worst podcast hosts to help us create grow and protect our well fellow risk takers. Let's celebrate it today. We added one more person to our mission to help 1 million people reduce risk in their lives. This is your worst podcast hose Andrew Stotz saying. I'll see you on the upside.
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