Ep677: Eugene Ng – Keep Playing the Long-Term Game of Investing

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 join me, go to my worst investment ever.com and sign up for my free 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 hosts Andrew Stotz, from a Stotz Academy, and I'm here with featured guest, Eugene, Eugene, are you ready to join the mission?

Eugene Ng 00:46
Totally. Andrew, really looking forward to then thank you for inviting me on.

Andrew Stotz 00:49
Yes, and I'm looking forward to it too. Let me introduce you to the audience. Ladies and gentlemen, Eugene, is the founder and chief investment officer of vision capital envision capital ventures. He's also an author of the Amazon best selling book vision investing, how we beat Wall Street, and you can too, he also teaches investing once a year to educate new investors and to give back born and raised in Singapore, Eugene studied economics and finance, where he received his summa cum laude from the Singapore management University in 2008. Eugene's career in finance spans over 11 years, his career started in 2008, joining Citi as management associate for three years. Subsequently, he was with JP Morgan providing effects, and interest rate sales and advisory for corporates for over eight years, where he was a vice president, while Eugene, take a minute and tell us about the unique value that you are bringing to this wonderful world.

Eugene Ng 01:56
Thank you, Andrew, I think the work if I can sum it up really is vision. And I think it's really about the future and how we together as a collective force, and join hands to make the world a better place. I think it's about me, for example, me really being an active practitioner, and a teacher all at the same time. So for me, I do it quite a via couple of ways. And the first way to do it is by a vision capital and visual capital ventures. So envision capital, we actually invest in publicly listed companies. And in ventures, what we do is that we invest in early stage startups. And this really, ultimately aims to really best reflect our vision of our future, which is really our mission that is changing and shaping the world for the better. To me, investing in stocks, and professionally managing my own capital. So far, it's something I've been doing for over six years now, and really investing in startups just over two years ago. And I think just just really focusing on this early stages, and you're investing early stages in series A's and B's. And this is just kind of what I'm focusing on. So I also wrote a book, which is vision investing just over three years ago, I think, as you mentioned, the title, the really the main aim was through through a data backed approach, and just adding this philosophy go approach of how one can invest better, and really try to just understand this long term drivers and stock prices, when I first started investing in the stock market seemed really random. And for me, it was just trying to figure out, there must be some anchor right to, to understanding this long term drivers of stock prices, and I couldn't really find any investing back then. So I really strove to just, you know, write a book that really undergoes all the basics, why investing my long term? Why stocks, why certain companies, why certain traits, no, and what to really avoid, I think as in investing so much about really focusing on increasing our probabilities of successful long term, just try to find some very highly asymmetric payoffs of owning, winning companies that are growing compound is a very long run. So I think that's really an author, the book, I started teaching. So this taught my first batch of students last December, I know, Andrew, you, you also teach February investing. So I'm planning over, there was over two and a half weeks, and over six, three hour sessions. So I do hope to do that once or twice a year, depending on the demand. But it's really through this process of educating that I want to kind of just help more investors also get out there, so that they can to invest better, you know, and together, we can be a very powerful collective force. And also through this teaching as well. I'm also giving a sudden a giving back fun, of which 50% of the net cost proceeds are then kind of donated to the giving back fund, of which 20% of this annual gains in any given year, actually donated to a philanthropic cause. So hopefully we know as more students that done through basically all of this, this giving back funds gets bigger. And of course, hopefully it gets compounded over time as well, with its underlying investments. You can provide this very, very powerful force of good and I think over the long run, and hopefully you can use that to impact and change more lives for the better maybe through education and I think that's a big thing. So to really cement back, you know, it's really just as vision and vision through many, many different ways of how me as an individual can really seek to give back to the world. I think that that's, that's, that's the really the key bit of it. And when

Andrew Stotz 05:15
you look at the early stage investments, are you looking at any particular type of company or in any particular country, or any particular region, or sector or something like that, or tell us more about that.

Eugene Ng 05:29
But in terms of holistic startups, I tend to really focus on our CIP very disruptive, I would say, more deep tech kind of startups, I would say, really looking at what Peter Thiel defines it as really Zero to One, I'm looking for something not just, it's probably just complimentary, or adding something to the product, but really getting something that is totally brand new, creating something that is, you know, if done, really change the force for good. So like, just the likes of like Facebook done investments in nuclear fusion. And like, for example, if nuclear fusion, it's gonna be done, it's something that's truly going to be renewable, right. And all and in my opinion, all electric city, if can be done will be either nuclear fusion, or, and renewables, we literally don't need any fossil fuels. And that can be so powerful, we want it on when, when on time, and it just comes through, I think that's something that will truly impact the mankind in a very, very big way. So I think the way to do it is really just try to do it, meaning I do know that large majority of them will fail. And this is just part of the sort of book. But if done correctly, you know, we would have highly asymmetric returns, and that those minutes will drive the popular portfolio. Geographically wise, I am generally quite agnostic, but tends to I do tend to see a fair bit more innovation from the US. And that's why the majority of startups also come from the US. I've done some Asia and somebody wrote, so but it really depends on what is really very important. bottom bottom I'm writing from the standpoint will be what the startup is doing in the way the market is. And I think that the total addressable market attempt is always key in terms of where they are in the market. So I think that's a good way to think about it.

Andrew Stotz 07:07
And where do you get your funding? Or people investing with you? Or what is it? How does the model work?

Eugene Ng 07:13
Yeah. So right now, I'm just managing purely my own capital, and just allocating it between public and startups. But it's something that I'm going to look forward to do. And hopefully I can get to some my own fun, external fund managing external capital, in terms of the public space, in hopefully this year also. And of course, in the coming years, once I get to do track a good track record in terms of sources now there could be something they could explore. But I think really just focusing on public equities, I think investing is, is my iki guy, something that I that I really love or something I think the world needs something that would somebody something, I think, work and, and hopefully pay in some stage. So something that I truly wish I can give back that value back.

Andrew Stotz 07:58
Well, it sounds like you've got an exciting stuff going on and exciting future. So that's good to hear. 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 it, then tell us your story.

Eugene Ng 08:16
This is a great question. And when it first came out, I think it got me thinking a lot. I think at first thought I wanted to share an error of omission from an extra monetary loss from a bad investment, which was actually a fraudulent investment in Wirecard AG, which was the Germans payments company, which fought for insolvency back in 2020. Some people know that there's actually a Netflix documentary on it. But I think instead of going down and actual monetary loss, I wanted to go to something that was non monetary, but was actually I would say one of my worst investment ever from the standpoint and I think this greatly influenced me in terms of my investing approach and philosophy. This firstly happens after my near death accident almost 10 years ago, when she broke my neck. So she broke my neck when I actually was intoxicated. At a very very young age in my early 30s I decided to do a somersault into a very shallow swimming pool and I broke the top of my head she hit the bottom of the swimming pool. And so my see one he may see one of my cervical bone broke into two pieces. The back now joined at the time by war hero vest which four screws screw into my skull on my head and how severe this injury was was that if anyone would get it 99% of them will die. And if they survived nine out of 99% of them would have been paralyzed in some form or another. So to me

Andrew Stotz 09:36
and for those of us out there, you are moving around and you know have seems to have full mobility so that's amazing.

Eugene Ng 09:44
It is indeed so it is really a walking miracle I must say and I still have a broken neck and to this very day I can't play any impact sports or anything that because if I do so, you know I will lose my life literally and just try to read was recently standpoint. And I think, for me after that new Death incident, it really got me thinking about what can I do with my life? Right, I think at that point, and I was just spending money, you know, as being in banking is very nice, very nice, comfortable job, right. But I'd really want to do something more nothing that really go back to vision, which was the first question he asked me. So for me really being a fairly logical, curious person, I think I was fairly good at numbers as well. So I started upon, okay, investing in what can I really do about it, and I wanted to master it, I think that's really important that said something to do it, I really want to master it. So in my early 30s, I've never read an investing book, I've heard about Warren Buffett's success Berkshire Hathaway, you know, the concept of value investing. So actually decided to pay up and sign up for a three day investing course, to accelerate my learning. So instead of renewed instead of reading books, and you know, trying to take time to figure it out, make costly mistakes, mistakes over a period of time, wanted to just do to investing costs, accelerate my learning, and try to go so over remember very fondly over the second day of my investing course, of this course, participants will actually play this simulated stock investment game. Now there are five stocks to choose from, of which the financials will prove provided, you will play this all the 10 rounds, you can decide to buy or sell each round. The key here that they gave an additional advantage was that you can take up to 10 times leverage on the very limited amount of capital that you had to buy the stocks. Now at a time, you know, thinking was very smart, analyzing us in finance, I was in banking, you know, before round one, I choose three, three of the five companies equally split it. And I took the maximum leverage possible. So it took up to 10 times my capital. So beautifully there and the game was clearly rigged. The stock market was up 10%, I was one of the top few winners of the entire class of 60 participants. And knowing that one should be invested in the long term and not trade, right, which is what the course has been teaching me in the very first day, you know, I just did nothing. And just the second round came, the stock market was up again, even more than 20%. And suddenly, I was the top guy in my class, right, of course, with the power of leverage, because you just got bigger and bigger, right? And even so the game host was asking me to come up to share my experience. And I felt so good back then, right. And I just realized I was just trying to foolish lease sharing my success. Now, there came Roundtree, there was a massive stock crash, as a recession in a scenario and the stock market was down 50% being highly leveraged, I was immediately wiped out being one of the first to suddenly be at the top and suddenly end the game very early. I think this this was very, very painful for me, because it was a class of 16. I thought I could do this game in ACC game pretty well. And, and then, in a game of 10 rounds, I was out on a very, very good run. I guess it was a deep hurt. And I think as the game continued through ups and downs, we were just ultimately, down to the final, it was just a handful of people 60, maybe two most three people left. And then of which, you know, the first person then basically one from there. I think technically, the biggest lesson what I heard was that this was a very simulator game, because this could clearly happen in real life, if I didn't realize this, and I think he didn't cost me a lot, a bit. But I think it taught me just tore me apart mentally. But I think the most important bit was doing this I had to stay focus and ask myself, you know, it is okay to make a mistake. But most importantly, I made this mistake very early, but how can I really learn from it? And I kept asking myself the question, which was if I knew how the game was played, there's going to be just all these ups and downs, which is really what the real lifestyle Okay, and what was really simulating it was going to be what I do different. And I think that struck me so deep into my heart and this is really, I would say the worst investing investing mistake from a non monetary standpoint, it just, just really I think got me really to the deepest rungs of it all.

Andrew Stotz 14:06
And how would you describe the lessons that you learned?

Eugene Ng 14:10
Not surprisingly, the lesson was not what I could do to become number one because you do to play this game right you think the best the best thing is to figure out oh, when the market go up and down, use leverage at the right time to buy when it's low sell it when those high right and to buy the right stocks and to just emerge the overall winner. But factually, on hindsight you will be easy, but on foresight is just almost impossible. Of course the you know the person who will play the game changes all the time and and and that's what really is in the stock market, right. But I think the answer in my mind after observing all the rounds, which is so much simpler, was one was realizing there was just impossible to market time to know when to buy low, sell high true or the markets up and down. I just don't know where that time. And most importantly, if I get one decision wrong I just get one decision and it compounds and it just spirals down and slippery slope which I cannot recover. So I think the most important thing for me was to figure out how to keep playing the long term game of investing. The dominant strategy I knew was to identify the top companies of what was available, which was three to five, or what you know, is, and we will never know. But most importantly, is to never take any leverage, never take any margin. And no matter how attractive it was, and to hold it through all markets up and downs, because if had played the game again, right, if I took the three companies or the five, held issuer market up and downs, at the end of the 10 rounds, I will be the top three, there was just how simple it was, right? Depending on how good it was, you know, I could be top two, the second or the third, or the first it really didn't matter. It was for me not about being number one, it was just for me to keep playing the game. So if you never can never be completely wiped out, ever, you know, you'll just be there. And I think, for me, I really think very laudable durability right? Never been wiped out. So then he then translate back into risk management, hurting the way they think about it is to never do anything to avoid to avoid at all costs. Never play any games that result in an unlimited downside. So we've tried to play a Russian Roulette right as Nassim Taleb and he says, a Russian Roulette is where you have a pistol, and it's one gun and one bullet in the pistol chamber and you keep rotating and skip spinning, and you should pull the trigger. You know, do you might have a one in six chance, five to six chance of not dying, because there's one bullet in six, right? If you keep spinning, keep playing this game, eventually you will be dead. Right? Right, because you keep pulling the trigger. Once the one is extract is almost faster than every independent outcome. It's just independent. Right? So I think the question is, if the question is when, when you will die, right? So I think this became a such a crucial hallmark of I think about probability and risk in investing, right? It's not some price volatility, it's just not risk. Right. So the true risk is really permanent loss. And that's what truly matters, right? So think of one negative downside. So like, for example, what I do in my portfolio is that there's no margin, there's no leverage, I don't do anything like that. It's just simple buying and bow, there's no short selling, because when you short sell, it can go down much more than it can go up. I'm sorry, you can go on much more money when it goes when it goes down. Because when you maximum go down, you make you earn 100%. But if you're short, so if something is spikes up, you know, you can lose much more than that. I don't sell options, I can buy options as well. Because if you sell options, again, you know, if it goes down, you can lose everything, you buy options, you can lose the entire option premium. I don't do turnarounds, I don't invest in cheap and weak businesses systems. So I kind of know what you know, anything that could can go absolutely down to zero. If you try to avoid all that negative downside, you can keep playing the game. So they're still powerful. But it's really about not losing to win. And I think once you eliminate all this negative downside scenarios, you can then start thinking about winning. And in investing, we all try to think about outperform and winning, right. And the way I think about probabilities and success is this. The most beautiful thing is that in investing when you're buying something, the payoff is theoretically unlimited. Because the downside is actually better. Because when you buy something, maximum downside is 100%. But if you're buying a great winning companies, the great compounders. And eventually what they do is that they become multi baggers, right? You can become 5x 10x 2050 or even 100x. Right? So the maximum upside is then unlimited. And if you think about it, if you do it right, in a portfolio, in a diversified diversified portfolio or a concentrated portfolio, you actually allow this winners to really just one run really well. You're not forced to treat them over time, because it has a concentrated portfolio, they become really back and forth between your minutes and allocate them down to the next best winners and stuff. And what happens is that the most beautiful thing is like Peter Thiel resists, our loss will drive the investment performance of your portfolio. A few winners with just confident majority of the head movements, we have the losses of all the losers combined many falls over really meaningful over this is something that I thought I would experience when I was writing my book, I have an experience back then. But I've come to experience that, you know, just over this many years, and I've done it and I expect that to be more accentuated even more pronounced, the losers will just become so small and become so vulnerable. And now what we need to do is just identify all this winning traits of all these winning companies. So just do well over the long run. And, you know, and that's why when I came back to it, as I believe that anyone can really do outperform the market. You just need to get that whole structure right. And this was just some of the beautiful lessons that I got from this very key was The thing, this thing that that really just got me to frame that mindset, so well, and

Andrew Stotz 20:07
maybe I'll share some of my thoughts. My first question is was the game that you were playing in that three day investing course, they were providing the information like, Okay, now, today, this is what happened in the market. Therefore, these were the winners, these were the losers, right? They were providing an artificial environment, right? It was supporting the real market. So what? Okay, so the lesson here is, how it fascinating how something completely made up, can have such an emotional impact. This is something that I think people miss about the market is that you know, markets real, but it doesn't even have to be real. You can go to people with a simulation type of thing. And you can stimulate the same type of reactions. And people are just very, very susceptible to it. And there's three things that I wrote down as you were speaking, the first one is overconfidence bias, where you're attributing your success, to something that you've done that made you better than the others or whatever. And of course, there was another person in that room that lost all three rounds, or the first three rounds. And they of course, didn't didn't have overconfidence bias state basically probably attributed to bad luck. Now, the second thing is randomness. So the fact is, if you play a game like that, you're going to end up with some winners at the end. And it's probably going to be completely due to randomness, particularly because it's such a, the environment is rigged, right. So what I learned many years ago, is the role of randomness in all aspects of life. Now, just so happens that the stock market is just a great demonstration of it. But in every aspect of our life randomness comes into play. Just think about the randomness related to your neck injury. You know, as you say it, you know, 90% or 95%, and people would have died, or if they survived, they would have been paralyzed. You know, to what extent was there just absolute randomness in that outcome. And then the last thing is risk management. And it made me think, while you were talking, I brought up the ALI Frazier fight in Manila, which was the third fight, I think it was 1973 between Fraser and alim, and it was just an insane, punishing fight in 1975. But one of the things that was interesting about the fight is, this is the third time that Ali and Frazier hadn't met. And they were both brutal boxers. And by the 14th, round, they both were sitting on their stools. And they both were telling their coaches, I want to get out, stop the fight. And Ollie absolutely demanded him. And his trainer wouldn't allow it at the moment. And then within a few seconds, just before the bell rang Frazier's sign, threw in the towel and gave up. And Ali won. And it says, He said it was the closest he came to death in his life. And the point is, in what I wrote down, when you were talking, I said, you know, in the stock market in particular, there are many life, there are many rounds, where your whole objective is just to not get knocked out. And that's, I wrote a little quote that you said, which was not not losing to win. And so I think that that, you know, was, you know, a good reminder of that. And then I think the last thing that you talked about was on avoid unlimited downside, and you talked about the Russian Roulette, you know, why even play a game? Where if the worst case happens, you're completely wiped out? There's no point. In fact, that's just an absolute madness, gambling, it's got nothing to do with investing in all that anything you would add to my observations of what you've taught us today.

Eugene Ng 24:22
I think you're really spot on, on your observations, Andrew, and I think the cubit is, I think, the many ways to invest to make money, right? I think if you want to do it long term, you really want to invest long term, avoid playing a game of the Russian roulette and as you rightly say, you don't want to be a hero, and then end up in a cemetery sooner or later, which is exactly what I did. And don't do that. Right. Don't use margin. Don't use leverage. To news don't sell short. Don't use complicated derivatives. You can sell buy options. Do that you keep holding just hold your buyer who stops doing a diversified portfolio not too concentrated, not too diversified. And the good thing is the no matter markets do will come up and down, markets will go up and down at any time. Right, and you will never be wiped out, you will keep playing the game, the best investors have been able to do so well is because they have been able to invest for long periods of time over decades, right? If you've not been wiped out, you would just be there. And I think, you know, how, how much how much he said Shannon's story, there was an there was a fund manager, who was never in the top quartile for five years. And it was just probably in the second quarter anyway. And after like 1010 or 20 years, he was standing in a top five and top five and 10% of the overall. So I think if you do it, right, you just eventually keep outperforming the market, you know by just by a bit by bit, you will be one of the top investors over a long period of time, it's not a month, trying to be like the number one guy here. So just try to do all of that. And, and you will be perfectly fine. I think, to me, that's just one of the biggest takeaway that we can say it's a very simple takeaway. It's really that simple. But just try to avoid doing all of that.

Andrew Stotz 26:04
So now let's kind of go back in time and imagine yourself the younger self and imagine a young person, you know, 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? Just one action.

Eugene Ng 26:21
I think, given that any of the listeners can do it is that you should really avoid of the mistakes that I've done. And I think anyone can really do it. I've done it and via I have to global effort to write it in a book. And I think in my book of business competition investing, where we share the share of my learnings and lessons, it's something that if you read through it is very methodical, it's really data data back, and we will try to tell you exactly why we do certain things. And for you, it's really tried to identify some of the winners. And I think it's something that took almost a decade to refine and continues to keep refining. And I think it's a book that can last for time. And hopefully through this learning, right, you can invest better and beat the market. I think most professionals can't, they don't buy truly believe we can. And true, you know, the consentement philosophy of evasion, investing in which you really can invest in companies that best reflect your own vision of the future, we can truly be a very powerful collective force, and help the world for the better.

Andrew Stotz 27:24
So that's a great resource. And I'll have a link to that in the show notes. Last question, what's your number one goal for the next 12 months?

Eugene Ng 27:33
I think it's really focusing on doing what I truly love. I think investing is my iki guy I shared early on is something that I love, I think I'm good at what the world needs, and hopefully I can be paid for. It's gonna be a noose, New Start journey of investing full time as a living, and not just managing my own capital, but also starting my own fund to manage external capital for others, I think in doing so really being just a trusted steward of long term capital allocation to those who just entrust their heart and no savings to me. And I think that's very, very important. It's going to be the biggest time of my life, to do something to which I can truly call my own. And to work for myself in my own business is something that I think is very exciting at the same time, but yet very fearful. But I think the joy of waking up every day to do what you truly love, like you enjoy doing this podcast and no, I think it's just one of the best thing I can do for myself, it's gonna be a huge step and a giant, giant leap. And hopefully, it's really something that I'm really looking forward to.

Andrew Stotz 28:34
Exciting 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 my free weekly become a better investor newsletter to reduce risk in your life. As we conclude, Eugene, I want to thank you again for joining our mission and on behalf of ACE Dance 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?

Eugene Ng 29:09
I think most importantly, is that you figured out what game you want to play in investing. You can play many, many different games is what ultimately what suits you. Do that well do that right, never be wiped off. And I think he will do very, very well.

Andrew Stotz 29:25
Fantastic. And that's a wrap on another great story to help us create, grow and protect our 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 worst podcast host Andrew Stotz saying. I'll see you on the upside.