Ep720: Laurent Lequeu – Sizing Is Crucial When Trading

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 an 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 to join me go to my worst investment ever.com fellow risk takers this is your words podcast hosts Andrew Stotz, from a Stotz Academy, and I am here with featured guests, Lauren, lo que Lauren, are you ready to join the mission?

Laurent Lequeu 00:37
I really enjoy it for sure I'm,

Andrew Stotz 00:41
I'm excited to have you on. And, you know, I, I originally saw you on Twitter, and follow you know, what you're what you're posting and things that you're talking about. And that's why I reached out to get you on the show. And so I really appreciate you joining and I want to introduce you to the audience. So Lauren is a multi asset investor dedicated to assisting high net worth individuals and retail investors in achieving financial success, two actionable investment insights derived from comprehensive global macro trends and meticulous bottom up analysis. Lauren is a global citizen with a mission to enhance financial literacy and empower individuals worldwide through education. And I can say your, your analysis is great. And I like you do go into detail. And your charts and graphs are awesome. So Lauren, take a minute and tell us about the unique value you are bringing to this wonderful world.

Laurent Lequeu 01:39
Well, I try to bring education to everyone, I think that everyone in this world deserves a financial education. So what I'm trying to do is to share the knowledge that I have accumulated over the past 25 years that I've been in this business, and share it with everyone. So as I net worth individual as well as retail investors.

Andrew Stotz 02:06
And what is, you know, when you think about your style, you mentioned about the macro and the bottom up, maybe you can tell us a little bit about if somebody wants to follow you on Twitter to subscribe to your newsletter or something like that. What should they expect to get from you?

Laurent Lequeu 02:24
Well, I look at charts, because I think that a good chart than more than a lot of words. I look at the past because I believe in cycles. So I think that things repeats, we cycles. And also I look at correlation. Because if it's something that happened in Brazil will have an impact in the North of Thailand at some point in time. Oh, this is the way that I work. I mean, I usually start with a chart. And from there, I try to I will say the quarter recommendation. And also I have to say that I mean I'm a contrarian investor, I like to go against the tide. So it's difficult sometimes.

Andrew Stotz 03:17
Yeah, contrarian has to have a lot of guts, and you've got to stick it out during the time that it's not working. You know, and it can be painful sometimes. But

Laurent Lequeu 03:28
yeah, and also, I mean, from my background as buyside analyst, I believe in fundamentals. So I'm still looking at valuation. I know that these days, people will tell you that valuation doesn't matter. But I think that back to the fundamentals, it's always the way that you generate a good performance.

Andrew Stotz 03:50
And can you give us like a taste of the way you see the world right now, from your, let's say, macro and bottom up analysis? Like what's one or two things that you've been seeing that you could share with us?

Laurent Lequeu 04:05
Well, I do think that I'm kind of against the consensus, I think that the inflation issue is not over. I wrote a piece a few weeks ago about the return of the inflation boomerang. So this is clearly something that we continue to drive the financial markets in the next few months and even years, I think that this is a structural change in terms of inflation picture. And also I think that in fact, everyone's seeing that the US government bond or US Treasury yield, this is the safe haven. And they also I think there's a big change because of what's happening in the US where the government will continue to stimulate the economy. push on the accelerator, while at the same time the Fed push on the brake. So you have an economy is going up and down. I call this the trampoline landing means that you will have some data showing good was other data showing potential recession, but this is only because you have the two major policy, the fiscal policy and the monetary policy going into opposite direction?

Andrew Stotz 05:23
And how does that end up working out? In your opinion? You know, on the one hand, the Fed can say, you know, quantitative tightening, and you know, we're gonna continue on. But if the government is just, you know, spending like crazy as I think that they continue to do, you know, you have a very different force. And I'm just curious, a lot of people are talking about, oh, it's a soft landing, everything's gonna be okay. And there's other people that would say, No, within, I don't know, three 612 months, we're going to have a massive reversal back to QE, interest rates back down to zero, because we're going to face another crisis, and the only tool they have is to lower rates and, and do QE and pumping money. Where do you stand on that?

Laurent Lequeu 06:12
Well, I think we have a lot to learn from emerging markets. And, I mean, I look at Argentina, because this is a country where investor and people have lost confidence in the government in the public institution. And at the end of the day, when you have a government's stimulating and central banks being hawkish, I mean, investors and citizens don't really know what's going on in terms of public institutions, right. So I guess that developed markets are heading into this kind of situation. But this is more of a long term, end game. Before that, I think that the Fed like the Buje will implement such something. So kind of the curve contour. I mean, they like the fancy icon name, so won't be YCC, they will find another fancy name. But once we cross five or 550, on the tenure, ie the years that the Fed, we have to do something one way or the others, but on I mean, the endgame is that we end in a inflationary environment means that the government and the Feds inflate the way out. And so in this environment, in fact, if you look at what happened in Argentina, to come back on this on Turkey, in Turkey, I mean, people are better off to buy the stock market or better off to buy the blue chips, that are able to generate free cash flow and earnings that are outperforming inflation that having a government bonds. So that I think that's the end game, I think it will take maybe five years to get there. So it's gonna be a bumpy road. Before we reach that, that level, but I will say on a risk adjusted return, I think that in fact, government bonds are not attractive at the long end of the curve,

Andrew Stotz 08:24
because the inflation is going to be higher than what people are expecting or factoring in to the yields right now.

Laurent Lequeu 08:31
Yes, I guess I mean, the, of course, the Biden administration doesn't want to tell anyone that inflation is here to stay right. Because next year, we have an election and we all know that the election will be on the gasoline price we will be on the inflation will be on the bill that everyone pays at Walmart this That's what matters for America. And I mean, the other things doesn't really matter for American. So I think that they will do everything to keep the can the first way to kick the can is reshoring inflation Reduction Act. So you put all the shovels in the streets, you improve infrastructure, this give also the impression that the government is doing something and this is positive for the economy. Right. So in terms of sectors clearly, in fact, the loss of cyclicals and industrials should be the way in the place where investors are not necessarily the tech, which are highly valued.

Andrew Stotz 09:39
And just to wrap this up, my next question related to this is, let's take the average investor from Asia. Let's not let's not think about maybe Singapore or Taiwan or Hong Kong, where the currencies are tied to the dollar to some extent. Let's think about an investor a high net worth investor in Thailand as an example or Indonesia. Asia or wherever, where there are somewhat floating currencies. And let's say they don't have any US exposure right now and they could they have cash to allocate? Do you think that they should be allocating that money to the US now? Or do you think that they should leave it in their home market? Or how would you see global asset allocation?

Laurent Lequeu 10:22
Well, it depends on the time horizon, I will say that in the first phase, all this is very bullish for the US dollar. So we will still see US dollar strengthening, the strengthening will be mostly against dem currencies or mostly against you against Japanese yen against the pound against emerging market, I think is kind of a bit of a different situation. I will say that emerging market currencies in the next three, five years, most likely range bound against the US dollar. But after that, you will have a massive appreciation of emerging market currency. Because once the, I will say institutional investors realize that the way out of the US is inflationary. I mean, they have they have on the emerging market as the other place to invest. And that's why I mean, these investors should start looking at local currency bonds, which I think are undervalued give a good yield pickup, and where you have a strong potential of currency appreciation over the long term. I have highlighted what I call the bi mi, these are the four big emerging markets outside China, China is a bit difficult to invest for non Chinese investor, uprising, India, Mexico, Indonesia, these are very big domestic consumption markets in emerging markets. These are countries where the central banks, in fact, were proactive in fighting inflation, where the central banks have been already cutting rates the Brazilian central banks have pivoted two weeks ago before way before the Fed. And well I think there's good value and where everyone is under invested because it's not on the radar screen of the big institutional investor, because everyone look at Nvidia. Because it's, I mean, it's the safe trade, right? If you are managing pension money in Singapore, buying the Brazilian stock market is not really the safe trade if you want to keep your job. So but I feel that's where the art for in the future will come from.

Andrew Stotz 12:50
So let me just summarize it by saying, first is your thinking dollar strength initially, and it's going to strengthen against the develop market currencies mainly, and emerging currencies will be in kind of a holding pattern. And then eventually, there'll be a massive depreciation of dollar and appreciation of emerging market currencies. And you mentioned Brazil, India, Mexico and Indonesia, all relatively strong domestic economies large enough and emerging to the extent that they may be long term beneficiaries of what eventually will start to be the negative impact on the US dollar in the US these would be longer term places that would benefit is that summarize it anything else you would add?

Laurent Lequeu 13:49
That's right, I think other ASEAN countries will benefit as well, but they are too small to be on the radar screen of the big institutional investor. So, I mean, indirectly once all these vi mi are doing where Thailand and neighboring neighboring countries will do well, but I will say that these are kind of two small markets to fall under the radar screen. So if investor want to keep it simple in emerging market, and because I mean, I think it's difficult to invest in China as a non Chinese investor, these bi EMI are the place to be I mean, for the next 10 to 15 years.

Andrew Stotz 14:37
I just noticed I mean, you don't have much discussion about Europe. I just curious what is just, you know, given your, you know, where you originally come from, what's your perspective on Europe these days?

Laurent Lequeu 14:52
Well, if I have, I can be honest, is a dead zone. I think that the energy crisis will get Worst, Germany, which was the engine of Europe, its business model is broken. The business model was based on cheap energy coming from Russia. This is a broken business model, the demography situation in Europe is negative is like Japan, so you don't invest in markets where you have negative long term demographic trends. So that's what that's why I think you will, in fact, aside a few stocks, which will benefit from the rise of these bi, EMI, and we all know that these are in the luxury sector, some specific industry or companies that are able to sell overseas and have a diversified source of manufacturing. Also, I this, I don't see any reason to focus on Europe. In fact, I think that you will, it's where you will see the first credit crisis before the US and that's why I think that you will see flows from the Euro zone into the US dollar zone, because typically a European investor, we will find a sci fi when in the US dollar.

Andrew Stotz 16:17
And is that because I mean, if I look at the US banks, they're actually in pretty good shape. If I look at them, compared to, let's say, 2008. So the banks have some weaknesses in regional banks and commercial lending for commercial real estate. But if I look at European banks, and having been through a period of negative interest rates and all that, are you thinking that the bank sector is more weak in Europe? Or where's your thoughts on that?

Laurent Lequeu 16:43
I think that the banking sector is weaker in Europe than in the US first. Also, the issue of Europe is not one country, there's no one here there's no, I mean, the ECB is there as the central bank, but they are 27 different fiscal regime in Europe, there are 27 different governments in the Eurozone. So I don't think that European banks will have to deal with domestic problem. And, and as I said, Because of Germany, and the fact that its business model is completely broken. I mean, Germany was the drive driver of the European wars, right? So all other countries like Netherlands, Belgium, and Sweden and all these surrounding countries. I mean, I set to follow Germany in that descending trend for the next few years.

Andrew Stotz 17:43
So for the listeners out there, I'm gonna have links in the show notes to your sub stack called trillion next, and so that I assume that's the best place for people to go that want to hear more of what you have to share.

Laurent Lequeu 17:58
Yes, I write a free weekly newsletter, I also have new portfolio for subscribers, I mean, different types of portfolios, some are more active, and I'm managing a long short. So for those who are interested for very trading opportunities, that's a very actionable opportunities. What I call a strategic portfolio is basically 20 ETF, reflecting my macro view and my long term views.

Andrew Stotz 18:33
Fantastic, well, we'll have links to all that in the show notes. And so for the listeners out there, the viewers who want to learn more, make sure to go there and also follow you on Twitter. I know I've enjoyed your posts so I appreciate that. Well, 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 circumstance leading up to an intelligent story.

Laurent Lequeu 18:57
When my worst investment ever, in fact, acuity not long ago, it was just a few months ago, I thought I can outsmart all the edge man and all the smartest investor by shorting Nvidia, before the first quarter results. I can tell you it has been a very painful experience. In terms of worse investment, however,

Andrew Stotz 19:27
what was your thesis? Originally, it was it that it was already priced in or that it wasn't going to be as good as what people thought or

Laurent Lequeu 19:34
what my thesis was. It was more than pricing. It was extended. It was an overcrowded trade. So it has everything to be said on the news kind of event. And it seems that no, I still have some more people able to chase the unchangeable.

Andrew Stotz 20:00
And what? How did you handle the positioning once it started going against you?

Laurent Lequeu 20:06
Well, I had to cut right, because I had to, I mean, I think that what is very important is risk management. So I had to I took the loss. And I mean, I think that what I learned is that every trait we know lose, and you need to be humble in this business. So, I mean, you just take the eight, and then you will restart, right, because it's your business is what you is what for you are waking up in the morning, right is to look at their screen and find the next good long or the next good short opportunity.

Andrew Stotz 20:50
Yeah, I guess my lesson I take from it is that you, you have to accept that you're going to be wrong. And when you get it wrong, you've got to be able to exit, particularly in a short position, because you know, it can turn real bad real fast. So there's also the issue of position sizing, particularly with you know, with a short position that it can get, you know, really out of control. So I think it's a good lesson. And here's an expert, who's made a bet on a particular thesis. And it didn't work the way you thought, exit. That's my biggest takeaway from that.

Laurent Lequeu 21:31
Yeah, that's right. sizing is very important. I mean, I think that every trade that you go in, they cannot kill you. They can just eat you, but they cannot kill you. Because you need to stay in the game, right. And so sizing is the most important. And also, as I said, risk management, you have to, you have to admit that you are wrong, and then the market is always right.

Andrew Stotz 21:59
Yes, if you don't admit you're wrong, the market will admit it for you.

Laurent Lequeu 22:04
That's true. That's right. That's right. You need to be very humble. And the issue that I have since I've joined this industry is that I find that it's not really an industry where people is humble, he's, it's a lot of very, a lot of people are very tiny part of what they do, they never tell you about their worst investment ever.

Andrew Stotz 22:30
And that's what we're all about more than 700 interviews of people talking about their worst investment ever to help. And that brings me to the next question, which is based upon what you've learned from the story that you've told, and all the stuff that you've learned over the years, what would be you know, let's imagine a young person who is thinking they're going to go short on a particular stock, what's one action you'd recommend that our listeners take to avoid suffering? The same fate?

Laurent Lequeu 22:55
Well, as I said, I think sizing is very important. Before you enter the trades, you need to know how much you can lose so much you are able to lose, it's more important that almost you can wait. In fact, over the long term, if you know for every day, every trade or much you can lose, I think that you will be a very successful investor. And as I say, admit that you are wrong. There's nothing, there's nothing wrong to be wrong. This is an industry where you have to be right more often than wrong, but you have to you will be wrong.

Andrew Stotz 23:34
Yeah. Well, I think you've set a great example of somebody that you know, is super experienced, and yet, you know, you're going to make mistakes. And so that was a great example, what's a resource of yours or any others that you'd recommend for our listeners?

Laurent Lequeu 23:50
Well, I think that everyone should continue to learn. And I encourage everyone, to be a continuous learner. We can learn from everyone something every day in our life. And in finance is very important. Because I mean, this is an environment industry that is evolving quite fast. So learning and being Amberlynn. As I said, even after 25 years in this business, I still make mistake. And I still learn new things every day. I think that focusing on personal learning and personal development in terms of financial literacy is very important.

Andrew Stotz 24:39
Great. I love continually learning and that's, that's, that's a lifetime thing. And that's what makes finance so challenging is you really do need to keep learning. Alright, last question. What

Laurent Lequeu 24:52
I think that the issue is also that the educational system is not really helping Joe and Jane to learn about or to manage his or her own portfolio. So I think this is something that you kind of miss coming from the government mission to help people to go.

Andrew Stotz 25:15
It's funny how much people hate government, but yet they rely on government so much. It's a contradiction. Last question, what is your number one goal for the next 12 months?

Laurent Lequeu 25:28
Well, as I said, on a professional level is to be fully dedicated to my new company, which is part to improve financial literacy for everyone. On also, this is part of my mission, I would say to democratize and demystify Marco investing, I think there's no need to be fearful about macro investing. At the end of the day, all these concepts of investment can be explained quite easily. And that's what I try to do also on Twitter, I guess, good charts usually helps a lot of people to match to memorize what's happening in the market.

Andrew Stotz 26:18
Well, that's, that's exciting. And I know, as I said, I've been enjoying your Twitter feed. So 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. And we just got a good story to help us with that. As we conclude, Lauren, 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 worst investment ever into your best teaching moment. Do you have any parting words for the audience?

Laurent Lequeu 26:48
is the best award I ever receive Andrew. My last word would be that unlock your individual financial success and learn to be financially independent.

Andrew Stotz 27:06
Great, great advice. And that's a wrap on another great story to help us create, grow and protect our wealth fellow risk takers, this is your worst podcast hose Andrew Stotz saying, I'll see you on the upside.