Ep735: Swen Lorenz – Carefully Consider Liquidity in Your Portfolio

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Quick take

BIO: Swen Lorenz is a passionate public equity investor and the face of Undervalued-Shares.com. With over 30 years of experience in investing, Swen has a knack for finding exciting investment opportunities in very unexpected places, which he discovers while traveling the globe.

STORY: Swen had a 12.5% stake in a German fund manager performing well. A competitor wanted to buy up companies in that space and approached Swen to ask other shareholders if they would sell. The company didn’t like this, asked the regulator to look into Swen’s affairs, and accused him of all sorts of things. It ended with Swen narrowly losing a contentious proxy battle.

LEARNING: Carefully consider the liquidity of the investments you’re holding. Going above the disclosure threshold as an investor is dangerous.


“I’m a big proponent of investing into stuff that’s liquid and where you can get in and out quite easily, even under extreme circumstances.”

Swen Lorenz


Guest profile

Swen Lorenz is a passionate public equity investor and the face of Undervalued-Shares.com. With over 30 years of experience in investing, Swen has a knack for finding exciting investment opportunities in very unexpected places, which he discovers while traveling the globe. His trademarks include extensive investigative reports, which give investors plenty of inspiration and ideas to work with.

Worst investment ever

Swen invested in a German wealth and fund manager. The company fitted his investment profile; it seemed appealing to his common sense and had huge potential. Swen felt that he was ahead of everyone.

The company was listed in the late 1990s through a quiet listing. Swen liked that because there were virtually no headlines about this listing. The company came with excellent fundamentals, had superb dividend yield growth prospects, and growth rates from the past were excellent. So Swen was basically buying growth at value prices. The company’s market cap was just 50 million euros, but it set out to conquer the German market for independent fund managers and wealth managers and take away market share from the banks. That was the big idea. And that was something Swen believed in.

In 2003, during the Dotcom crash, a major investor was forced to liquidate. Swen bought as many shares as possible and got a 10% stake in the company, eventually 12.5%. That meant that suddenly, he was on the public register. It also meant that he was highly visible. Swen had bought most of the stock at a pretty low price.

The investment went great until a competitor wanted to buy up companies in that space. The competitor felt it was a great idea not to approach the CEO, the major shareholder, but to instead call Swen first. He asked him to do a survey as an independent entity and speak to shareholders to see if they were willing to sell.

Little did Swen know what he would kick off by having that conversation with other shareholders. He informally approached the CEO and a variety of other large shareholders. The CEO Swen spoke to was not entirely straightforward. He said he wanted to sell, but that was not the case. The other stakeholders, however, wanted to sell. For most of them, it was just a matter of receiving the highest offer possible. But it all became complicated and contentious.

The company eventually asked the regulator to look into Swen’s affairs and accused him of all sorts of things. It ended with Swen narrowly losing a contentious proxy battle. He spent half a million euros on lawyers. He was in the public and had the regulator looking into him. As a result, many personal things also happened, like losing friendships. Taking up the competitor’s request was a complete waste of Swen’s time and reputation.

Lessons learned

  • Carefully consider the liquidity of the investments you’re holding.
  • Going above the disclosure threshold (3%) as an investor is dangerous because it influences your thinking, and your ego gets involved.
  • Carefully consider whether you want to be involved in activism because it’s complicated, time-consuming, and expensive.

Andrew’s takeaways

  • Learn to spot narcissists and psychopaths, and educate yourself about that.
  • Be very careful about the size of your liquidity, and expect that you will get a huge upside for taking on that liquidity risk.
  • You must be able to outlast an irrational market when it’s not behaving as you think it should be.

Swen’s recommendations

Swen recommends checking out The Activist Investor (TAI), a news aggregation website. Join the email list, and you’ll occasionally receive emails with the most recent articles about activist investing. You’ll also get academic research and quirky articles from niche publications that you wouldn’t usually come across—all for free.

Swen also publishes a free weekly newsletter, Weekly Dispatches. It helps its readers shape their worldview, teaches new investment strategies, and gives new ideas that can be researched further.

No.1 goal for the next 12 months

Swen’s number one goal for the next 12 months is to become a better writer and write more for his website while having fun.

Parting words


“Keep listening to podcasts like this one because, as an investor, you never stop learning, and you have to learn from others.”

Swen Lorenz


Read full transcript

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, I'm on a mission to help 1 million people reduce risk in their lives. And thank you for joining that mission today. Fellow risk takers this is your worst podcast hosts Andrew Stotz, from a Stotz Academy, and I'm here with featured guests Swen Lorenz. Swen, are you ready to join the mission?

Swen Lorenz 00:38
Hi, Andrew, I am absolutely ready to join the mission Great to be here.

Andrew Stotz 00:42
I'm really happy to get you on. And I know you and I had a lot of let's say, they used to call it telephone tag, email tag going back and forth. Each of us you know, all have lining it up. So it's taking some time to get to this point. So I'm really excited. And let me introduce you to the audience. Sweyn is a passionate public equity investor, and the face of undervalued shares.com. With over 30 years of experience in investing. swin has a knack of finding exciting investment opportunities in very unexpected places, which he discovers while traveling the globe. His trademarks include extensive investigative reports, which give investors plenty of inspirations and ideas to work with. And I remember watching a video and you talking about how many 1000s of stocks there are companies listed. Sometimes, you know, you get bored with the stocks that we normally look at. And when I heard you talk about the number of stocks out there, it really made me realize what you're doing is pretty fascinating. So why don't you tell us about the unique value that you're bringing to this world?

Swen Lorenz 01:59
Thanks, Andrew. So my number one mission really is to bring a different perspective and a bit of original thinking to this world into the investment community. So the number of publicly listed companies in the world is probably somewhere close to 100,000. No one really has a precise figure. And it depends a bit on how you count. There's some OTC markets that may or may not be a stock exchange, but you can buy, buy and sell shares. And I am a great believer that value is the greatest value in the best investment opportunities are found where pretty much no one else is looking. And nothing gets me more excited than to research a stock that no one else has done any research about because that's where I find private investors in particular can gain an edge and be basically ahead of everyone else. And that's something I've been doing for 30 years now. And I think so everyone associates me with traveling the world and you know, looking in all sorts of weird places for investments. But I think what I in the meantime have accumulated is also a knowledge and an experience of different cycles. I've lived through a whole number of cycles in the stock market in the economy, I've seen all sorts of strange developments going on in the world. And I think as you build up not just years, but decades of investment experience and research experience, that really helps you to develop some original thinking and to approach things from a different perspective. I've also probably just simply done a few weird things in my life, like I want to live in the Galapagos Islands for four years where I stepped outside of the world of finance and became CEO of a scientific organization that works on conservation. So you know, speak of living in an unusual place and doing something that's totally outside of your field of expertise in a way. And as a result of my background story, I guess you get to read on my website undervalue. chase.com you get to read about companies that you wouldn't read about elsewhere. I'm aiming to write about trends that you may not have spotted yet which may be controversial even because people don't want to hear about you know, stuff changing and challenging their own views. I mostly deliver all of these things in long form writing so I just write a lot and very extensively and I hope to make it interesting through storytelling and make it very accessible. Anyone who wants to check it out I publish a free article every Friday that free article in all modesty I would like to claim is usually say good it should actually be a paid for product but my actual paid for product is a service where I deliver 10 research reports a year very extensive reports and that service is only $49 a year so it basically costs per month what other people are charging for you know sorry it cost per year what other people are charging per month or you know even what, I think I'm pretty cheap. And I'm doing all of that out of a passion for writing and because I want to deliver independent thinking to my audience, I don't get advertisement I don't do any sponsored stuff. It's just really people are getting me for better or worse.

Andrew Stotz 04:55
And you know, sometimes when we look at these, you know, opportunity noose around the world, they end up coming up in places like in some countries or jurisdictions where? Oh, yeah. Okay, that's an interesting idea. But now you're exposing me to the foreign exchange risk of that country, that's a rack, and that type of thing. So when you are looking at these, you know, unique ideas that are out there, where are they? Are they? Are we talking developed markets? Are we talking emerging? And we talking frontiers, like what kind of generally are the places that you're looking?

Swen Lorenz 05:30
That's an extremely important question. And accessibility of investments is one of my favorite subjects. Because there's no use if I write about countries as exotic that no one could trade shares, they would want to trade shares there, most of the stocks on my website are traded on a major exchange somewhere in the Western world. And when it comes to finding bargains that are overlooked, and which others haven't written about yet, if you really don't need to travel very far, I live in the British Isles, and the London Stock Exchange is famous for being actually quite intransparent, you wouldn't expect that. But London has always been a placement market companies go to London and place shares, but the trading subsequently is not very well attended to. And there are many companies in London that don't really have proper research coverage. And you know, that's literally on your doorstep. And London is the world's largest or second largest financial center, I write a lot about stocks that are often listed in the United States, but which may be from a different country. So I mean, a well known example is for example, Mercado Libre, which is the Argentinian company that has built the reputation to be the Amazon of South America and E commerce 1012 years behind in South America. So they're basically doing what Jeff Bezos did in the States. But you know, in a cycle that is sort of like one step behind. So this is not exotic, exotic, it's just unusual. And most of my readers are just ordinary investors, you know, who couldn't purchase shares in Uzbekistan, or Iran or one of these countries. Sometimes I write about these places, it's fun, it's entertaining, it's recorded, your perspective also shows you just how good you've got it by staying right at home. But, you know, accessibility of investments is a big thing. For me,

Andrew Stotz 07:20
it's hard for some people to understand that there will be all of these, you know, opportunities out there, because they think, well, there's all these investment banks, and there's all these fund managers, and there's all these people, but the reality I remember, as a head of research, you know, in Thailand, you know, we're constantly trimming our list, I don't want to cover that company, we're not gonna make any Commission's on it. And all of a sudden, what you find is there's this enormous uncovered part of the market now, that in the old days would be almost enough to say, there's all kinds of things that you could find. But my question is, nowadays, with everybody doing quant and so much more data out there, yes, there may not be coverage. But that doesn't mean that that company trading on, you know, point five times price to book with a 20%. Roi is not known. They're much more known. It seems like so are there still opportunities?

Swen Lorenz 08:16
Absolutely. I just give you a very current example, which I think summarizes a lot of things. So, back in April this year, I wrote about a stock that's listed in Canada and also in the States, MTC very easy to trade anyone with a brokerage account in the States, Canada or Europe could have purchased that stock. And that company owned compensation claims against Venezuela, you know, speak of combining something that is easy to trade with something that is fairly exotic, but also was, I think, a very intelligent investment. Because if you followed what was going on behind the scenes, and then in courts of law, with Venezuelan claims, it wasn't actually that difficult to figure out that something was going to happen in that area. And it's in each sector, obviously, something was going to happen very soon. And fast forward four months, that thing is up 150%. And it's purely driven by the fact that the legal situation has evolved in such a way that probably that company has a wall of money, a very large chunk of cash coming its way before too long. And you know, you can't argue with the company getting more cash than its current market cap, that means the share price will go up, usually, and, you know, speak of beating the market looking in unexpected places, but still being able to just trade it quite easily. And it's also I think, an investment case that made a lot of sense. There was nothing you didn't have to be a rocket scientist or you know, know your way around biotechnology developments or something like that. It was just a pure and simple compensation claim that went to a Western court of law and came out in exactly the same way in exactly the way that if you have some kind of faith in In property rights, this is how you expected it to come out. And it did.

Andrew Stotz 10:05
It's interesting. I mean, there are so many opportunities, I have an online class called valuation masterclass. And basically, students have to value in the bootcamp, which is the first part of it the first six weeks, they have to value the value, one company with me, which is a company called Fastenal. In America, which is very fascinating, you know, company, it's also I would, I looked at 20,000 companies across the world to find the company with the cleanest p&l and balance sheet. And that's it, that company is it. And the reason why I was looking for that was because I wanted in the foundation part of the valuation match, because I didn't want confusion about you know, let's talk about, you know, goodwill, and equity, income and all of those things. It has none of that. So it's really great, simple company. And then and then they value one company that they choose. And then later in the professional part of the valuation masterclass, they value nine more companies, three of them are once they choose chosen. But the reason why I'm mentioning this is because yesterday, one of my students just graduated, which is very hard to do, it's about 150 hours to get to the end. And he presented his final Company, which was a shipping company, I never heard of this trading on half times price to book, solid ROV good long term performance, you know, it wasn't like it was in a tragic situation called de NAOs. I'm not sure if I pronounced it right. But Dana O S. And I was like, yes, there are lots of opportunities out there. And so that's just an example of one of my students bringing up an opportunity, his presentation was excellent. And it made me you know, definitely interested in the story.

Swen Lorenz 11:46
Yes, and there plenty more out there. Imagine a pool of companies that consists of 100,000 companies. And I never checked the numbers, but I make a hand waving guess at least half of them have no no real research coverage. For sure, surely, there's something to be spotted out there, it just takes a lot of hard work, I like to call it the brute force approach, you just have to sit down and look through companies individually supported by the gut feeling and the expertise that you build up over the decades. But sometimes you just have to sit down and you know, and look at things that you haven't come across yet until you spot something that's worth digging into deeper

Andrew Stotz 12:24
when someone comes to your website, or they start signing up to get your research and the work that you're doing. Sometimes some guys in this situation, produce some great stuff about what to buy, but they don't always tell you when to sell. Like, it's just a flow of research. And so some people saw that by saying here's my model portfolio, and therefore you can kind of know when I'm positioning something and when I'm not, how do you handle that? You know, what, what is it like in your style?

Swen Lorenz 12:57
It's a very important aspect, I have made a very conscious decision to not have a model portfolio, simply because I feel very strongly that portfolio management is a whole different skill set and a whole different subject as well. And you probably know the famous example of Stan Druckenmiller, or maybe it was George Soros basically saying that, I mean, picking picking the right investments is one thing, he actually makes most of the money from weighting things in the right way in his portfolio, sometimes just really going forward in terms of portfolio weighting and conviction. I have very diverse readers, stating the obvious, everyone has sort of different preferences and needs and is in a different phase of their life. I don't claim to provide any kind of investment service where people could, you know, use my research to build a portfolio based on that I just wanted to provide inspiration. Ideas. You know, some people might just say, you know, anything, that's when buys I sell, you know, like, do whatever you want with it, but there's no model portfolio. And I strongly urge everyone to come to their own conclusions and educate themselves about portfolio management as a totally separate skill set to investment research. One has only so much to do with the other.

Andrew Stotz 14:11
You mentioned something, I want to just to talk about a lot of the different stuff that you're doing, because I think it's great, and it's unique. And then we'll get into the story. But um, one of the things that you mentioned was that you know, you talk about trends that are happening trends that people may not necessarily like. And I'm just curious if you could give us a little teaser of some things that you're thinking about, that you think other people either don't agree with don't like or aren't thinking about what is one or two things that's on your mind? Well,

Swen Lorenz 14:45
very much on my mind right now, I think we've just seen peak woke for lack of a better word, and that's obviously one of the most polarizing subjects and it's very broad under you know, the whole woke and political polarization. You can, you know, put out Renewable Energy subject politics, what's happening in media, etc, etc. And I think where I have sensed a tipping point, and we have just, you know, thrown my hat into the ring a couple of days ago is the whole subject of fossil fuels. I've long been saying that fossil fuels will be around and we'll be used heavily for much longer than, you know, we were being made to believe and everyone is in favor of protecting the environment. And you know, energy transition has all sorts of advantages. And there's business to be done and technology is advancing. Totally undisputed. But until now, in the last years, if you made a case for fossil fuels, and you made a positive case for fossil fuels, and you said, you know, this is what the world is running on. And people would descend into poverty and the whole world would not be a great place, if we suddenly stopped using that stuff and use it actively and actually invested into producing more of it for at least a certain period. US castigated, and the stocks of oil companies, oil and gas companies were pretty much the bad guys. And I sense that we're currently having a real turning point, a tipping point where suddenly, these worries are falling away these worries of I don't want to invest into oil and gas, because it will be stuck in a in a value trap forever, or because my wife will hate me or my children will hate me for that. I think that's rapidly vanishing right now, in a and it's never a single factor. It's always, I mean, the world's very complex place. And everyone has, you know, lives in a little bubble and has a limited view of what's actually happening in the world. But my sense is that oil and gas stocks are ahead of a renaissance and they're doing so from a very low valuation basis with a lot of cash coming in. And there is a need for capex and raising money for this sector is only possible if you offer extraordinary returns on investment. And so I've just published a research report on shell, the British oil and gas company, which is the second largest in the world behind Exxon. And I see lots and lots of signs for that. And I mean, to stick with the work subjects I know, for example, sports retailers, who are currently saying, you know, we want to stop doing advertisement based on inclusivity diversity, but body positivity and all these things, and just go back to having sports and fun. He's almost revolutionary. So in my perception that's happening, if you write about that, of course, you upset all sorts of people. But, yeah, that's something I've, you know, stuck my head out right now.

Andrew Stotz 17:39
Yeah, it's an interesting one. I mean, one of the things that I think you've learned over the years is that things move in waves. And, you know, sometimes popularity suddenly becomes popular, and at some point, it turns. And the woke stuff is really, you know, I, I've been thinking a lot about it, in particular, in terms of Thailand. And I've seen a lot of that woke ideology coming from the US in particular, I'm starting to come into Thailand, and it really much of it runs counter to the way people think here. So it's, it's interesting to watch out kind of, you know, comes together, you know, particularly in the case, let's just say, you know, of transgender in Thailand has been a pretty accepting place for that, like they don't, they're not a big deal. And they don't need, you know, somebody to come here and say, we have to have drag shows, because they're not big on drag shows to their kids or something. But they're don't have a problem with you know, you know, trans. So it's just, it's fascinating to watch how it's coming to Asia, and how Asia is responding or not responding and what happens. But I do have a little a little trend that I was thinking about when you were talking that I've got I don't, I think I'm I think I'm far ahead of everybody on this one. Okay, go ahead. So I think that ESG is going to be renamed in the future. And I've I renamed it, and I'm gonna, it's going to start and throw the renamed name out there, because I think it should, you know, take root and that is, every time I say, ESG, I always put a word in front of it, which is bullshit. And whenever I teach my students, I think, bullshit, ESG bullshit. ESG. That's bullshit. ESG for first reason is that the G should not be connected with the E and the s. G is a very simple thing that's dealing with the agency problem between owners and managers of business. So now you got the E and the s. And now what you find is that anytime you dig deeper into that subject, you find it's all ambiguity. It's no clarity, and it's a lot of pressure. And CEOs and CFOs are under tremendous pressure. Now, under this thing, I had a CFO here in Thailand told me, we had she had an auditor tell her that they're going to have to start taking a provision because of their ESG score. This won't go on forever. But right now, it's, you know, it's riding high. And I think the other part of that prediction is that stock exchanges are gonna kill themselves. Because if they become the enforcers of ESG, and now, stock exchanges, like the London Stock Exchange, are buying ESG rating agencies, and all of a sudden, you've got them implementing enforcing ratings on the stock exchanges, and profiting from the ratings agencies, that they're taking stakes. And all of a sudden, you have this incredible money and manipulation machine that you know, I think we may be, we may be it may be time to start some new markets out there that don't trade any ESG. But anyways, that's my nonsense, talk nothing like all the work that you do.

Swen Lorenz 20:58
Love it. And I believe in the end, the world always reverts back to common sense. And whether ESG is common sense, or just something, you know, to market products that otherwise people might not buy, because they're not good enough, remains to be seen. I'm very skeptical. And I've seen too many of the crabs come and go. And you know, 10 years later, people scratch their head and wonder why did anyone ever bother really?

Andrew Stotz 21:22
Well, I could go on. And there's so much interesting stuff about what you do the way you think, and all that. So I just want to highlight, we'll have all the links in the show notes. And I really want to encourage everybody to learn more and 49 bucks a year come on, that's got to be the best value out there. 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, and then tell us your story.

Swen Lorenz 21:51
So this worst idea ever, very much fitted the profile of what I liked to invest into, which is something that's overlooked. It seemed to be appealing to my common sense, it had huge potential. And I felt that I was ahead of everyone. It was a German company, speak of staying close to him. Since I'm obviously German. It was a wealth manager and a fund manager. It's a company called P H in navy alphabet, that's Papa eco hotel, the actual name is referring to the name of the founder, which is Peter E. Huber. And it's a fund management company that listed in the late 1990s, through what you could call a quiet listing. So they didn't do a big IPA with a placement, they already had a number of a good number of shareholders. And then this simply decided to list the stock on a stock market. That's something I quite like because then suddenly there's a new name on the list of publicly listed companies, but with virtually no headlines accompanying it, because it's not an IPO. So no one wants to really report about it. And that company came with great fundamentals had a superb dividend yield growth prospects and growth rates from the past were great. So you're basically buying growth at value prices. The market cap of the company was just 50 million euros, five, 0 million. So virtually nothing was really a micro cap. But it set out to conquer the German market for independent fund managers and wealth managers and take away market share from the banks. That was the big idea. And that was something I believed in a lot subordination stake. And then in 2003, during the.com, crash, a major investor got liquidated. And when he was just, you know, it was a forced liquidation at that time, I just, you know, bought as many shares as I could get hold off, and I got to a 10% stake in the company and eventually 12 and a half percent. And that meant that suddenly I was on the Public Register, first of all, and I come back to that. It also meant that I was just highly visible. And I had actually bought this stock, or most of it a good part of it at a pretty low price. So the whole question whether it was my worst investment ever, in terms of loss from the actual investment is something we'll get back to at the end. But where it started to go wrong was when a competitor wanted to buy up companies in that space. And that competitor felt it was a great idea to not approach the CEO who was the major shareholder, but to instead call me first and say, hey, it's when you know, would you sell? And secondly, do you think other major shareholders would sell? And could you as sort of like the independent entity here? Someone who's not on the board who's not closely connected to the company? Could you somehow you know, do a bit of a survey, speak to people and see if something can be done? And little did I know what I was going to kick off by having that conversation with people, you know, totally informally approaching the CEO and a variety of other large shareholders and I think what I had underestimated in retrospectives that is Some personality types are just call it manipulative call it toxic call them psychopath. This is a very complicated subject. But basically, the CEO I was speaking to was not entirely straightforward in dealing with. He said he wanted to sell, but now, he didn't really want to sell. But I took his initial assessment, you know, let's speak to them as a permission to speak to other shareholders. And it turned out that others wanted to sell as well. And for most of them, it was just a matter of receiving the highest offer as possible. As you know, as you'd expect, it's capitalism. It's the stock market. But it all became complicated and contentious. And the details of that would be, first of all, very complicated, and I don't want to risk any defamation lawsuits, because this is just way way in the past, I don't want to open that whole thing again. But it's just since you asked me about my worst investment, I'm very honest that this was certainly it. To cut a long story short, I was eventually the person publicly associated with being the head of a group who wanted to sell the company. And it became an activist case, with me heading the activists, nothing of which I had ever aspired to. It was just events happening, and then the media reporting. And there's this wonderful old saying that it's very easy to start a war, but to actually stop a war to get it to an end is the difficult part. And it turned highly contentious, very toxic. The company eventually asked the regulator to look into my affairs, and they accused me of all sorts of things. And stuff happening that in retrospective, I have to say, you know, various people should have really started defamation lawsuits against each other. But it ended with me. And that's the key point, really, it ended with me narrowly losing a contentious proxy battle. And narrow ly losing doesn't really help you, you just, you know, either you win, or you lose. So I didn't win, I spent half a million euros on lawyers, I was in the public, I had the regulator looking into me. All sorts of you know, personal things happened as a result as well, you know, losing friendships and all that sort of stuff. It was a complete waste of time. I don't know, actually, I can't say for sure how much I lost on the investment. I don't think it was actually that much. It was just three years of my life, lawyers fees, toxicity, there's a digital footprint of it on the internet, you know, which is not to your advantage. I eventually sold my last stock in 2019, I should have sold a lot earlier. It was quite a private, damaging story. And lessons that I learned, I have to say that as well. So it's great actually to speak about it 10 years later on, because now can look at it from a positive perspective. What did I learn? Well,

Andrew Stotz 27:51
let's go through what how would you describe the lessons that you learned?

Swen Lorenz 27:56
So I think there are a handful of things that I learned and I go through them sort of in order of increasing priority for investors. So that's the first ones I mentioned, are not really, that are not likely to be a high priority for most investors. But then the ones that I mentioned afterwards, probably will be the first one that going above the disclosure threshold, if you're an investor is a dangerous thing. Obviously, for most investors, that's never going to happen, you have to buy at least 3% of a company before you have to disclose something, the problem that happens is that going above the disclosure threshold influences your thinking. Because to go below it again, would mean that everyone knows you're selling. And then once you're associated with a company, I mean, it's not a bad feeling to be the big weak investor, which just disclose his stake. You know, it's good for the ego as well. If you're young chap, like I was at the time, you then wonder how does it perceive the markets or the public's? How does it influence the market's perception of me if I sell if I go below the disclosure threshold, so you stop thinking about it purely as an investment, and then your ego gets in the way and that's just as a terrible thing. Closely related to that, I think anyone should very carefully consider whether they ever want to be involved in any kind of activist situation. Activism is hard. It's very time consuming. It can take over your life, it can take over years of your life and a lot of money goes into lawyers, which you'll never get back. And I have to say nowadays, I think it's very important for investors, but also for anyone really to educate themselves about personality types. You want to be able to spot psychopaths, you want to know what a narcissist is. How do you spot people like that? And then you have to be aware that a lot of them end up in the C suite because they are extreme personality types. They have a much higher likelihood by a high multiple to end up in CFO position. So chairmen positions and all that. So you'll encounter all of those. And I think also in day to day life, choosing a spouse, choosing a boyfriend, girlfriend, stuff like that, you know, educate about educate yourself about extreme personalities is something that comes in majorly helpful. But probably the most useful aspect that came out of this, which every investor should really consider is that you have to very carefully consider the liquidity of the investments you're holding. And whether you're buying a large stake in something or you're buying an investment, where liquidity could simply dry up for reasons that you may not even be able to anticipate. If you get stuck with something that's terrifying and potentially existential. And I'm a big proponent of investing into stuff that's liquid, and where you can get in and out quite easily, easily, even under extreme circumstances, which is one of the advantages that private investors have. And you shouldn't give that advantage away. That's my number one lesson really, that you want to pass on to everyone, carefully consider liquidity in your portfolio, it's super important.

Andrew Stotz 31:10
So maybe I'll share a couple things that I take away. But before I do, let's just review those lessons. Going above the threshold, you know, can be a problem, it starts to influence your thinking, your ego gets involved. And that is the first one you also talked about, consider getting involved in activism, like it's a huge challenge. It's way beyond what most people think, and then learn to spot narcissists and psychopaths, and educate yourself about that. And they seem to cluster in CEO offices, and then consider liquidity. And liquidity is such an interesting factor when it comes to risk management. One of the things that I was thinking about when you were talking, you know, is investing is hard enough to get up above the radar and out there just makes it 10 times harder than just focusing on what you got to do. And so just any distraction, you know, can take you away from making the right investment decision. That's the first thing I thought about. The second thing about activism, I remember, there was an event in Thailand where the SEC talked about new policies that they were coming up with, with, they wanted, um, fund managers to write letters to companies, as activists, and that it was part of what they expected of fund managers, when they saw behavior and all that, and I raise my hand like, what if I don't give a shit about, I don't care about them. And I just I'll get out, and it's not my investment style. And this is totally against small investors. Yeah, I mean, if I've got a huge company, you know, investment management company, and I have the resources, you know, my vote counts, but it doesn't mean anything, if I write a letter to someone, and then you're just disadvantaging me. And I think the other thing I thought about it, too, is that nowadays with the media mob that's out there, the problem that you face is that you don't really want to get into a political battle, unless you got an army. If you've got 100,000 500,000, a million followers that support your way of thinking, you've got a defense against a crippling media and social media mob that can come after you. And so I had some particular case where on Twitter, I interjected myself in something and I very quickly retreated, because I realized, I don't have the army, and you can't win out there without the army. And then the last thing, you know, the liquidity thing, I think, is so valuable. And I hear so many stories about people getting into illiquid investments, and then they can't really get out. And I think for many people, liquidity is such a critical thing. And they don't always think about it. It's not to say that you don't want to have some illiquid investments, but just be very careful about the size of that liquidity and expect that you're going to get a huge upside for taking on that liquidity risk. So those are the some of the things that you know, you triggered in my mind, is there anything you would add to that?

Swen Lorenz 34:21
I think you summarized it perfectly, I really can't really add much to that, other than to just repeat. People underestimate to what extent liquidity can dry up in extreme situations. And you can obviously also turn the argument on its head and say that in markets where there's limited or no liquidity right now, that's where you in turn, also find some of the best investments but you have to be very specialized in that you really have to make that your mission. As your average private investor, I probably wouldn't, wouldn't attempt to do that. And that's go ahead, and maybe one more thing about activism. So I was in Yeah, I was an actual activist, but a lot of private investors fall for the clamor of following an activist and they read about it in the newspaper. And then they follow this guy's thinking that he knows what he's doing, you know, he's a strong dude, he was somehow pushed through his agenda. There are a lot of, there's quite a bit of research about how activism on the Hill doesn't actually pay off nearly as much as people think it does. Activism usually pays off in the first couple of weeks or months, because the media hype surrounding an activist case drives up the share price. And then usually, more often than not, things get stuck, and it takes longer than expected, and then the returns go down again. And so you know, if anything, ride that wave when an activist case surfaces, but be very careful not to get stuck for too long, because you think the activist is going to sort it out. So many times, it just don't

Andrew Stotz 35:53
sounds a little bit like buying rumor sell. In fact, once it really gets out there that it's happening, the market takes it, and then you know, you get the majority of the gains. The liquidity thing is interesting, because, you know, let's go back to John Maynard Keynes is you know, statement, which is, the market can stay irrational longer than you can stay liquid. So the point is, is that if there's great opportunities in liquidity, it's just that you have got to be able to outlast that irrational market when the market is not behaving the way you think it should be. So let me ask you, so based upon what you've learned, I want to think about a young person, a fund manager and investor, an individual who is you know, getting themselves kind of into this type of situation. It's maybe just at the point where it could spin out of control, or they could stop it or something like that. What would you what's one action that you'd recommend that they would take to avoid getting caught in this quagmire that you've described?

Swen Lorenz 36:57
Oof. Well, I mean, just be very aware of what we talked about the last 30 minutes and just get involved.

Andrew Stotz 37:04
Yeah, just hang up the phone when the guy calls are you did you know, sorry? Dizzy?

Swen Lorenz 37:10
Yeah, generally, no, I mean, no kidding. I tend to find that speaking to CEOs and speaking to people in companies can be quite detrimental to your judgement, I think to generally not take phone calls, not meet people and just be hard nosed, unemotional analysts sits at home. Even though that may sound like a bit of a sad life, I think it probably improves most people's investments performance, unless, again, you get specialized in meeting CEOs. And that's another skill, I don't have that I try to stay away from CEOs and the like, because they give me they're very good at telling a story. And I don't have the mental tools to withstand their salesmanship. So I'd rather analyze something from the comfort of my home looking at my screen.

Andrew Stotz 37:55
When I talk to my students in my valuation match class, I tell them that when I first started, I, first of all, I never read the research of competitors, I just was so afraid that the ideas that they were talking about, were going to come in my head, and then that's what I was going to be thinking, as opposed to trying to come up with my own idea. The second thing is that I very rarely met management. And in those days, I mean, I started in 93. So we're probably close to the same time, in Thailand, you know, I mean, you weren't gonna even if you could meet the senior management, you weren't going to get a straight story, and you weren't going to get a straight story, either because they were pumping it up, or because they were manipulating or because they didn't know. And they didn't know the results of the company until after they came out just as much. And so I really build a career around not listening to the company that much. And it's a little bit baffling for people nowadays, because you're overloaded with information coming from their websites, and all that, which I'd say go into the websites, getting the information out there, you know, that's not too bad. You know, try to understand the company through that. But when you're starting to really make your judgments, you know, try to try to use your independent thinking, which I think is you know, what, what you're trying to help the world do so. Normally, at this point, I asked, What's the resource that you recommend? And I just want to say that the resource is, you know, the work that you're doing, and that is such a great, you know, value for money. So that would be my suggestion. Do you have anything else that you would add to that?

Swen Lorenz 39:24
Yes, I'd add one particular website to it, which is called the activist investor, Tia, the activist investor, which is a sort of a news aggregation website. You can sign up to an email list and then they occasionally send you emails with the most recent articles about activist investing. Also academic research and sort of quirky articles from niche publications that you wouldn't usually come across. Great, great service for free. That's some that's something I recommend you sign up if what we just talked about sounds of interest to you.

Andrew Stotz 39:57
Excellent. So the activist investor dot com. I can see right here, and I'll put that in the show notes. Great, great resource. I haven't actually seen that myself. All right, last question. What is your number one goal for the next 12 months?

Swen Lorenz 40:10
Well, I just love writing. So I want to write more for my website. And people always tell me Oh, you write so much? And I, my answer is always I feel like I'm not writing enough because I've got so many exciting ideas and subjects that I want to research and write about. So becoming a better writer with each year that passes is something that's on my list and just, you know, do more of the same, and having fun.

Andrew Stotz 40:33
Well, listeners, there you have it another story of laws to keep you winning. Remember, I'm on a mission to help 1 million people reduce risk in their lives. And I think we took a step forward today, as we conclude, when 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? Ah,

Swen Lorenz 41:01
god on God so much. But I think just keep listening to podcasts like yours because as an investor, you never stop learning and you have to learn from others. And the service you're doing is amazing. And I'll share that with my audience as well. We have to help each other by sharing these stories. And then eventually, you know, it improves all of our skills and everyone wins.

Andrew Stotz 41:24
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 words podcast host Andrew Stotz saying, I'll see you on the upside.


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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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