Shownotes
BIO: Lance Depew has over 30 years of equity research, portfolio management, and corporate finance experience.
STORY: Lance’s worst investment was in a company called Transocean. He bought shares on in 2006 at $80.35 a share. He ultimately exited the position in 2020, when the shares sold at less than $1 a share.
LEARNING: Regardless of how smart you are and how much homework you do, things can go wrong when investing. Take steps to de-risk your positions.
“Despite your best-laid plans, things can still go wrong.”
Lance Depew
Guest profile
Lance Depew has over 30 years of equity research, portfolio management, and corporate finance experience.
Since 2000, he has co-managed Railay Capital Partners, L.P., a global multi-strategy absolute return hedge fund.
Between 1994 and 2007, Lance was a portfolio manager and director of equity research for Leading Assets United Ltd., the premier asset management firm dedicated to both public and private equity investments in the Thai market.
Mr. Depew received his MBA in finance at the Anderson Graduate School of Management at UCLA and is currently a member of the investment committee for the Santa Barbara Museum of Natural History.
Worst investment ever
Lance’s worst investment was in a company called Transocean. On January 30th, 2006, Lance’s fund management company bought the shares at $80.35 each. They ultimately exited the position on October 7th, 2020. The last sale took place at less than $1 a share.
At the time Lance was investing, Transocean had about a billion dollars of net debt, which was pretty modest relative to its market cap, which was below the $20 billion range. It wasn’t a highly leveraged company, nor was it trading at a high multiple. The utilization rates for the various assets in the industry were also very high. Further, Transocean was the number one company in terms of dividends paid to investors. The company looked like it would be an excellent investment with all these factors.
Unfortunately, several things went wrong, leading to a steep share price fall. The first problem was the global financial crisis.
The second problem was the 2010 deepwater explosion in the Gulf of Mexico. This crisis weighed on transactions and significantly impacted the stock price.
The third problem occurred in March 2020 when the Saudi Arabia and Russia oil price war kicked in as the two countries were duking it out in the global commodity markets. This war tanked the oil price for some time.
The fourth problem was the global pandemic. There was complete and sudden demand destruction that ultimately led to the price of oil dropping into negative territory for a brief period.
Lessons learned
- Regardless of how smart you are and how much homework you do, things can and will go wrong when investing.
- Don’t let one lousy investment weigh on your psyche. Just continue to plug away. Over time, you’ll be rewarded if you invest wisely.
- Invest in value, and you’ll get positive returns on investment.
- Investments can turn sour despite attempts to understand a company and an industry entirely. So you just got to anticipate that there are going to be unforeseen events during your investment journey.
- Occasionally, resort to timely sales as a way of de-risking your positions and bringing back some return on your investment.
Andrew’s takeaways
- You’ll lose despite your best efforts as a fund manager, so have a risk management plan in place.
- Take steps to de-risk your positions.
- Try and get different opinions on what you’re trying to invest in.
Actionable advice
Read as much as possible—especially financial journals such as the Wall Street Journal. Do as much research as possible and learn as much as you can about companies and industries, macroeconomic conditions, global events, etc. This will help you when it comes to putting your portfolio together.
No.1 goal for the next 12 months
Lance’s number one goal for the next 12 months is not to lose money and to earn positive rates of return on investment.
Parting words
“Thank you very much for your time, Andrew. I wish everyone the best of luck this coming year.”
Lance Depew
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Connect with Lance Depew
Andrew’s books
- How to Start Building Your Wealth Investing in the Stock Market
- My Worst Investment Ever
- 9 Valuation Mistakes and How to Avoid Them
- Transform Your Business with Dr.Deming’s 14 Points
Andrew’s online programs
- Valuation Master Class
- The Become a Better Investor Community
- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- Best Business Book Club
- Become a Great Presenter and Increase Your Influence
- Transform Your Business with Dr. Deming’s 14 Points