Jeyabalan Parasingam is a Certified Public Accountant (MICPA) and a Chartered Financial Analyst (CFA). He has more than 25 years of corporate experience in areas such as finance, taxation, auditing, investment banking, private equity, real estate, and investment management. He’s been instrumental in the set-up of several successful start-ups over the past 15 years with a range of companies involving BPO (business process outsourcing), private equity, real estate, and technology. He has raised more than 600 million US dollars in equity commitments over the past 10 years.
“One of the best lessons I’ve learned in stock investment is that there is no amount of under-investment that you can do in due diligence. You’ve got to start due diligence in advance by reaching to the internal stakeholders.”
– Jeyabalan Parasingam
Lessons learned
1.Detailed take on vital nature of due diligence behind any stock investment. Start vigorous due diligence a long time in advance. What he means is:
a. Speak to the competition
b. Speak to bankers
c. Pick up the phone and call a supplier or get someone else who you trust the call a supplier pretend to be a purchaser. That can give you a good understanding of the company’s actual strength and weaknesses
d. Don’t just use due diligence to confirm the investment. Instead, ask the question:
“Should we walk away now and lose a little bit of money that we have spent on due diligence and bringing the deal to the market, or do we continue this transaction and spend a lot and have a lot of grief later?”
– Jeyabalan Parasingam
2. Forget the fact Big Four accounting/audit firms or big banks are involved in doing the due diligence because they too can make mistakes or miss crucial items.
3. Take a central role in the due diligence. Personally oversee the proceedings and be the duty person, as you can hire an accounting firm to do the books, but the people are doing the due diligence might have little to no experience.
4. Make sure the people helping you with due diligence understand the sector well enough and have good enough relationships in that sector, so they can provide information that would not otherwise be available.
Andrew’s categories of mistakes and their antidotes
Andrew has gleaned from the Worst Investment Ever series of podcasts and blogs six main categories of mistakes made by respondents, starting from the most common:
- Failed to do their own research
- Failed to properly assess and manage risk
- Were driven by emotion or flawed thinking
- Misplaced trust
- Failed to monitor their investment
- Invested in a start-up company
He also mentions his six-step investment process, which can help to avoid such mistakes
- Find an idea
- Research the return
- Assess the risks
- Create a plan
- Execute the plan
- Monitor the progress
- Andrew’s takeaways
1.Often (Error No. 2) investors fail to properly assess risk. And this research on risk should be clearly separated from research on return.
2.Due diligence 1: Set up a team within your organization or your group solely to assess risk and do due diligence. Its sole responsibility should be to prove why the investment shouldn’t go ahead, the reasons why and explain what the risks are.
One of Andrew’s prior interviewees from London talked about having such a peer-review process within his investment team to produce counter debates, requiring it as part of their stock/company-analysis process.
3. Due diligence 2: Be an eyewitness and just go to see. a. a. If you’ve ranked a company they are among your top-10 customers, go and meet them.
b. If a company is shipping goods to a warehouse, go to the warehouse and see.
4.Due diligence 3 and the idea of misplaced trust (Mistake No. 4). People that are cooking the books and playing games, are always going to use big brand names to hide what they are doing. But it doesn’t stop at products. Other brand names can also be used:
a. Customers’ brand names and suppliers
b. Brand names in the audit firms.
c. Brand names of the banks, so:
“To be a great analyst, you must start with the premise: trust nothing, trust no one. In other words, get evidence … even branded companies and big companies and successful companies can easily miss the things … particularly when someone’s really working hard to hide stuff.”
– Andrew Stotz
You can also check out Andrew’s books
Connect with Jeyabalan Parasingam
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