Shownotes
BIO: Pavan Sukhdev’s remarkable journey from scientist to international banker to environmental economist has brought him to the forefront of the sustainability movement.
STORY: Pavan ignored his investment rules and invested in a bond, which caused him to lose almost his entire investment.
LEARNING: Don’t make exceptions; the rules are the essence. Set up concentration risk limits. Diversify.
“A lot of investment mistakes are about not following your own disciplines. Had I followed my own disciplines, I wouldn’t be telling you this story.”
Pavan Sukhdev
Guest profile
Pavan Sukhdev’s remarkable journey from scientist to international banker to environmental economist has brought him to the forefront of the sustainability movement. As CEO and Founder of GIST Impact, he collaborates with corporations and investors, leveraging impact economics and technology to measure a business’s holistic value contribution to the world.
Worst investment ever
Pavan is a relatively disciplined investor who always tries to maintain his money’s principal value by investing it wisely. For this reason, Pavan follows a couple of personal investment rules.
First, wherever he invests, he either makes friends or has friends. Second, Pavan follows a strict logic when investing in financial assets—he only invests in sovereign bonds. Third, Pavan has set up a concentration risk limit of $100,000 for a single sovereign emerging market. He never invests more than $50,000 on a credit. Fourth, Pavan always reads about the company he wants to invest in to understand what it does and its credit rating. Fifth, Pavan typically invests in sectors where he would be above average in reading and knowledge about that company.
Once, a friend came along and asked Pavan if he knew of a particular company with a bond earning 8.75%. Pavan hadn’t heard about it. But he happened to know the family that owned it, and he was interested in it. Pavan decided to invest $100,000 instead of putting his maximum concentration of $50,000.
As part of his investment strategy, Pavan reads about companies. A news flash said that the company was involved in a contract in Malaysia. Pavan thought this was great, but that was that.
He never followed up on the news. It happens that the company lost the contract. Losing the contract was a big thing that caused the bond price to go down to $75 from $88. At this point, Pavan should have reduced his exposure by bringing the $100,000 down to $50,000, but he didn’t. He continued to sit on the losses and hung on, and the price kept dropping. Finally, at some point, when it was just too low for it to make any difference, the company stopped paying coupons.
Lessons learned
- Don’t make exceptions; the rules are the essence.
- Set up concentration risk limits and reflect the volatility of that asset.
- Diversify
- Don’t sit on losses.
Andrew’s takeaways
- Follow and stick to a stop-loss system.
- Don’t buy something just because you’ve sold something else.
Actionable advice
Set your concentration risk limits, put your trading style in place, and diversify.
No.1 goal for the next 12 months
Pavan’s number one goal for the next 12 months is to get his company profitable because it’s nice to be right, but it’s better to be profitable.
Parting words
“All the best, guys. Invest wisely and invest well, and when it works, do something useful with that money.”
Pavan Sukhdev
[spp-transcript]
Connect with Pavan Sukhdev
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
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- How to Start Building Your Wealth Investing in the Stock Market
- Finance Made Ridiculously Simple
- FVMR Investing: Quantamental Investing Across the World
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- Transform Your Business with Dr. Deming’s 14 Points
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Connect with Andrew Stotz:
Transcripts
Andrew Stotz:
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. And I want to welcome my listeners and viewers in Switzerland today to the show. Yeah, fellow risk takers this is your worst podcast host Andrew Stotz, from a Stotz Academy, and I'm here with featured guests. Pawan Sukhdev. Pawan, are you ready to join the mission? Hi, Andrew.
Pavan Sukhdev:
Yes, happy to join you.
Andrew Stotz:
Yeah, I'm excited to get you on. And for those people, unfortunately, there are some people that are only listening. They miss that beautiful background and the flowers and the tree and the blooming. So that's wonderful. Yeah,
Pavan Sukhdev:
well, to put that in context, this place is in the Nilgiri Hills, which is a gem of a location in South India, which is not far from an organic tea plantation that I look after. And that's my hobby, would you believe so? What
Andrew Stotz:
what elevation does tea has? Is there? Is there a requirement of elevation for tea or
Pavan Sukhdev:
Yeah, it typically grows between 4000 which is where we are, and my plantation and 6000 feet, but some of the highest tea that has grown anywhere is right here. In Kuranda. It is in the Nilgiri Hills, and that is seven and a half 1000 feet. It can go higher than that. Yeah. Yeah.
Andrew Stotz:
And what's your favorite type of tea that you drink by the way?
Pavan Sukhdev:
Well, I mean, I was beautiful enough, there's only one tea species wise, but of course, it all the magic is in how you make it, you know, whether you whether you have it as green, which means you don't have to put it through the smoking process and or whether you have it as dark smoke tea, basically, the the typical, the the typical process, there's only again, one process of baking it, but I liked the dark varieties. I also liked the smoking variety. So I probably say Lapsang Souchong is my most favorite, but I would say a close second, which tastes very different is Darjeeling tea. But as of now, the tea that I'm really fond of is white tea. And that is basically tea, which is made only of the bad. Normally you pick three leaves and the bad. But for white tea, you pick only the bad. And you typically have to pick it before dawn, otherwise, the plant has its own defense mechanisms and makes it the transit. Hmm.
Andrew Stotz:
So what's the what's unique about that? Is it sweet? Is it pungent? Is it mild?
Pavan Sukhdev:
It is a remarkably full of flavor, but it doesn't have any of the toxins or the or the sort of acidity that you associate with tea. So you get the flavor of tea and you have white tea, but you don't get the acidity of tea when you when you have white tea. So it's actually quite amazing. It's very good for health.
Andrew Stotz:
When I was in China doing my PhD, I really just enjoyed all the tea culture because I never had any of that. So that was wonderful. I found some really great green teas, which I enjoyed a lot. But let me just let me introduce you to the audience since they don't know you yet, but they will now so come on. It's a remarkable journey from scientist to international banker to environmental Economist has brought him to the forefront of the sustainability movement as CEO and founder of just impact. He collaborates with corporations and investors leveraging impact economics and technology to measure a business's holistic value contribution to the world. For one, just take a minute and tell us about the unique value that you arranged in this wonderful world.
Pavan Sukhdev:
Well, the key thing, as you said, rightly is a company's unique value is its contribution to the world. And it has to be holistic, why would you want to exclude any aspect of its value creation. So in that sense, what I'm doing and what my team at my company is doing is to redefine corporate performance. But what we have sworn to do and we have stuck with that is to use nothing except peer reviewed science and robust economics. In other words, physics, chemistry, maths, biology and economics, basically. And everything that we do is peer reviewed. Why do we do that? Because we do not like the idea of ratings, right? Yes, everyone knows that just looking at profits as a form of performance for a company, which also trains employees and changes the human capital, which also has pollution, pollution and emissions and so on which destroy natural capital for the world. And which may or may not generate positive or negative flows on social capital. People are kind of aware of that. But to say that we're going to figure all this out by putting ratings 1234512345 and add it all up and some Get, get some magic answer 42 I'm sorry, that's not science, right? That's just ratings and opinions. And we are not into ratings and opinions, we are into science and economics. That's the difference. So what we do is something that others would like to say that they do, but they can't, because they're not following the rigor of science and economics. I
Andrew Stotz:
studied with a man when I was 24, named Dr. W. Edwards, Deming, and he had one of his 14 points for management is abolish ratings. Now he was, I love it, he was talking about abolishing the rating of individuals, because just, it's just, it doesn't serve any purpose. And most of the times, you're, you're just measuring random variation and handing out a bonus to this guy this time and that guy next time, and but it just made me think of that, which I find fascinating. So maybe you could just tell us a little bit about let's just say, Who is the ideal user for this? Is it the company that wants to do this asset owner that's saying we should do this? Is it a who is it that's that that wants to use the service you provide?
Pavan Sukhdev:
Well, to be honest, Andrew, the first and most obvious user is the app owner, because at the end of the day, it's about debt and equities and accompanies and basically accompanies issuance. So and remember, company has positive and negative externalities that are not included in the price of this debt and equity. So basically, what I'm saying and what we are saying, as a company is that today's externalities, today's corporate externalities are tomorrow's risks. And tomorrow's risks are the after tomorrow's portfolio losses. So if you happen to be a portfolio owner of a company that has massive negative externalities, and when those externalities get internalized, either by design, which we all hope is the right way forward, or by decree, which is somebody changing the law, or by disaster, as happened in the Gulf of Mexico, with the P, when these things happen, which basically internalize those externalities, whoever's left holding the baby is got a problem, because you've got a squealing baby, which has just crapped in your hand, and you don't know what to do with it. Right? So that's not a happy situation, those who are parents will know what I'm talking about. So you don't want to be in that situation. Therefore, in advance, prepare in advance, have the right defenses in place, have the right analysis in place, and ideally, avoid high externality companies, which are negative externalities, because yes, the chances are, you will get crap in your hands.
Andrew Stotz:
And what is the road for engagement with you? Like how do people do that? What's the process that they go through to learn how to benefit from your service, and you know, where they gain that benefit?
Pavan Sukhdev:
Well, I guess those who just want to learn about this area, recommend, please log into our website and enjoy and the lots of articles, interesting pieces, blogs, which will just help to educate and enlighten you on various aspects of what's going on. It'll also tell you a bit about who our customers are, to the extent that we are allowed to share that. And some of them have like UBS, the bank, for instance, that allowed us to use their logo, and talk about what we do for them, officially, so and various others as well. So I think step one website, step two, if you happen to be an asset owner, or an asset manager, and my concern is your concern, please log in, send us an email, send me an email, I'm more than happy to, you know, answer you a simple question or deflect your question to some expert in the team who can address it properly. And then try it out. Try it, we cover 14,000 companies, using science and economics and estimating their impacts. Give us a chance to try out your top 10 competitors and maybe your top 20 big suppliers and check them out, see what you see.
Andrew Stotz:
And what is the Where do Where do where's the client that engages with you end up? What is the ultimate objective of what you want them to get
Pavan Sukhdev:
to so two objectives if an investor she or he ends up with a portfolio that has much better return, not just on risk, but on sustainability. So they get hopefully similar returns with relatively low, relatively low error, the divergence from benchmarks and they end up being less costly to the universe less costly to society and the environment. So coming up with coming up with low tracking errors and coming up at the same time with decent returns, but much lower negative impact is if you like a key goal for the investor or the corporation a key goal is understanding how you're doing on all of these environmental and social factors. How well are you educating staff and what kind of training and development How bad is your IRA GHG emissions versus competition or water usage versus competition or air pollution or tailing them waste versus if you're a mining company versus competition where I used to be the others in that space. And that gives you a genuine understanding of where you should be going right? If you are way ahead or someone will talk about it crew about it, why not? If you're way behind the average well, but fix it, go fix it, right? So you learn, I mean, you learn as a corporation, and you definitely benefit as an investor, because that way you're defending your portfolio against some of the worst accusations of irresponsibility that are made against you.
Andrew Stotz:
It's interesting, because I know, small business, which I do a lot of work with small and medium sized businesses, they don't have resources. And so you end up in a situation where it's like, look, we were complying with the law, we're complying with the regulator, they come out to our factory and they look at our discharge, and they look at our, you know, and we comply. What do you say to a small or medium sized business that says that and they just say, we don't, you know, we don't have the resources or that type of thing?
Pavan Sukhdev:
Well, you know, to be honest, that's a perfectly legitimate complaint. And the way that we address that is to say, okay, don't worry about it. Here's a platform called sme 360. X. And by the way, it's called that because it's meant for SMEs, SME, 360. X means it's a platform that helps you look at yourself from a 360 degree angle, right? So you will get a sense of your, your environmental impacts, and of course, you have your financials, hopefully. And that's a nice starting point, because let's say you have nothing except your electricity bill. Okay. And you know, who you are, where you are, as in location, right? And you know, your electricity bill, and you know, what sector, obviously, you know, what sector you're in, right? If you tell our system, just that, it will give you an estimate, saying, okay, based on this, here are your GHG emissions and air pollution emissions, because GH, air pollution is largely due to the use of energy. So that's a great start. So you already know something. And not not only that, but where are you visibly, others in your sector? Are you average, above average, below average? And we'll tell you how much right so it'll tell you where you fall on the histogram of impacts for air pollution and for greenhouse gas emissions. That's a good start. And that's all you had is your electricity bill. That's all you had, right? Yeah,
Andrew Stotz:
I'm just there. I'm just impact on Comm slash 360 X right now.
Pavan Sukhdev:
There you go. There you go. You found it. Well,
Andrew Stotz:
that's a great intro to what you're doing. Now it's time to share your worst investment ever. And since no one goes into their worst president thinking it will be tell us a bit about the circumstances leading up to the
Pavan Sukhdev:
story. So to tell you the circumstances of that, thank you. embarrassing question, I have to also explain how I normally invest, right, so I'm relatively a disciplined kind of person, I feel that the money that I've made after a hard career as an investment banker needs to be used for good. And I'm trying to maintain its capital value by investing it wisely. Right. So to Ahab worst investments is not nice, and therefore I'm talking about it as well. And thank you for asking me that question. Because a lot of the worst investment ever, is about not following your own disciplines. So the isn't that amazing? Like had I followed my own disciplines, then I wouldn't be telling you this story, right? So plus and minus, so you wouldn't have a story. But you know, at least I may, I may be a little bit less, less unhealthy than I am now. So what is my knot? So first, I need to explain to you how do I normally invest. So with background as in a bank, I used to find it literally impossible to invest my my bonuses and my surplus, and other than some of the bonus was paid in Deutsche Bank shares and fine, I just leave them until such time as I got time to sell them once in a while. And the rest of it, I would use and either invest in property, which is something that you have to be careful about, because you need to ensure that you check your the legal ownership of the property that's really important, right? Property rights are not necessarily secure. So when investing in property, and I do have something like a third of my assets in property, when investing in property, I'd always check that property rights are secure. And if it's in a country like my own in India, where sometimes they may not be secure, make sure that I have got social equation with the location with people there. So there's somebody that even if I'm not there, there's someone watching out for me. So wherever I invest, either I make friends or I have friends. It's like an absurdly simple thing. So that is one key thing, but that's literally a third of my property. And that bit has done quite okay. Rather Well, I would say in fact, because property is one asset that doesn't get manufactured by us. And as the number of people increase property available, tends to typically stay the same. So you know, there's a simple logic way where demand supply equations would normally push up its price. When you move into financial assets, I have a very strict logic, which was born During the days, when basically I was working at the bank where I would only to begin with I would only ever invest in sovereign bonds. Why? Because if I invest in any credit or any equity, I need to get a permission from compliance every morning, right? So if I put in a bid for a bond or inequity, permission online means literally physically online compromise. If it doesn't hit the price on that day, I have to not use the old permission from yesterday, I have to ask again, every day, right? So I may have to ask permission 234 or 10 times if I didn't get my price. When I exit, firstly, I can't exit within a month, even if I've made my expected profits or, or even if it collapsed, or even if it collapse, I couldn't exit within a month, because that's the minimum you have to hold it for. You're not supposed to be speculating, right. So you hang on for a month, and then you get permission to exit, right. And once again, if you don't fit your level on day one, you have to get an another point next day. And so on next day, you could get three permissions or four permissions by the time you get out of the damn thing, right. And I thought to myself, sorry, this is just too much of a headache. I don't I only have 24 hours in a day, I can't do this. What was the one the one asset class which they didn't have the problem with? sovereigns? Why? Because well, you're a banker, you don't know any more or less about sovereigns than anybody else does. If you if you are a banker, and you basically have some interaction with any credit, then in theory, because you're a banker, and you may be a lender, or an originator, or an investor in that company, you may know things that the average man on the street or one on the street doesn't know, right? So for years, I'm talking about two decades, I would invest only in sovereign credits. And to this day, I am quite a damp handed investing in emerging markets sovereigns, because the yields are typically higher, and I tend to avoid the ones that are going to collapse. Right. So that's still there. But so let's say I have a quantum x, let's call it $100,000. For how much will I invest in a emerging market sovereign? I then when finally I left the bank, which was only in 2008. I said, Yes, I can invest in anything, but I bet not invest in anything, otherwise, I'm gonna get screwed. So as I literally wrote this down, I said, Okay, I will not give the actual number because that would be irritating. But let's say 100,000 was my concentration risk limit. And that's what is called the concentration risk limit for a single sovereign emerging markets. And why I'm nothing against Germany or the US just that. I don't do much on those because, you know, like, that's not possible. I mean, what do I know, more or less than anybody else? On us sovereigns, so I'd invest no more than 50 on a credit. Now, when I invest 50,000, on a credit dollars, that would require me to have read up about that company, understand what the hell it does? Where's its credit rating? Is it? Is it single a plus? Or is it you know, triple B minus? Or what is it and why is it there? And what's it doing? That's so interesting, what is it that excites me, and that will take me to an analysis of sector and company. So I would typically invest in sectors where I felt that I would be above average in reading and understanding about that company. In other words, I would invest only in the following finance, which means basically, banks, I would invest in, because I was by that time, deep in sustainability. And I would know a decent amount about the sustainability of a company or its business. And I was the author of the green economy report. So I would typically invest in companies which were promoting or involved in the green economy, which means renewable energy, energy efficiency, materials, efficiency, stuff like that sustainable forestry, you don't get many of those sustainable tourism, etcetera, etcetera. So companies, which were doing the kind of business that I liked, right, but then I still need to read up about them and find out whatever my banker or some other source was providing, I followed all kinds of suppliers of research information from time to time, none of them have lasted very long. Because at some point, I get irritated by the lack of honesty, they keep telling you that they will let get you out of it. But as soon as the things start going badly, they don't really they kind of let you suffer. And then you know, by the time you got what from them, what you should have got last year is too late. So you know, I'm, I take I take material that comes to me from recess, which a pinch of salt, I do my own research, basically, Google, I just google and search and find out what I can about the company before
Andrew Stotz:
big risk because everybody likes to tell you when to buy, but nobody's around to tell you what to
Pavan Sukhdev:
do. Yeah, nobody wants to tell you when to exit because you know, they got it wrong. Guess what? Maybe you'll forget, maybe you won't think
Andrew Stotz:
when that goes to zero and you're
Pavan Sukhdev:
exactly right. Yes. So that has been when it comes to equities, I would say not 50 But I will typically invest my normal if it's 50 for the credit, then my equity investment would be 10. But I wouldn't begin with 1010 is unknown. Money Investment, I would begin with what I call it. testing the waters means dipping my toe in the water. I've heard of this stock friend said it was a great idea. I checked it out. Yeah, it's it's SunPower. And you know, it's its own 66% by total, that can't be too bad, by the way, it's crashed now. But the point is, it's SunPower homes owned by total, okay, that's the property, let's read up what it does. And it's still not making profits, oops, why, and so on. And then finally, invest a little bit because, you know, that's how much you can expose yourself to. And then before you know it a few years later, it splits into Maxine and SunPower. And then you will figure out which one to keep and which one to exit, and so on and so forth. So, but then that's because it's renewable energy. I like renewable energy, right? And overall, fine, you know, hasn't done that Scott has had its ups and downs on a down right now as I see it, but I need to go into the company SunPower and figure out, Okay, what's the proposition out here? What's the big deal? What does this thing do compared to others? How does it compare with the big boys like jinkosolar, and Canadian, solar, and so on? So I'd go into the details, but that would be a 10,000. Now, if I wanted to just invest in I wasn't really sure about senpai? Yeah, let's begin with 5000. And then see where it goes. And if it was going in the right direction after a few months or a year, okay, increase it to 10,000. If I think Man, this is the shit hottest thing that I've come across. This is so cool. I see. I'm kicking myself for not putting in more, yes, fine, then I'll increase my investment. 20. And that's it. I wouldn't go beyond that. Right. After that. You got your structure? Because structure? Yeah. So I had the structure. And I picked companies which had some degree of adherence to are they a finance company? Are they something in the renewable energy space? You know, are they kind of in the material space? Are they like Tesla, which is in the automated automotive space, but it's basically a green economy sectors, it's sort of it's essentially mobility, but with renewable energy as a driver, and so on. So I picked companies like that, which can work with doing the things that I wanted the green economy to do. But I'd be careful as to what I invested in, right? And yes, there will be some that would be coming up with sustainability stories. And this is where again, it got me thinking again, this crap, I mean, these sustainably stories are not hanging together all these ESG ratings. So fine, you know, then just stop believing ESG ratings about that about a decade ago. And so around the same time, as I started focusing on impact, and using not just impact investing, which is something else impact investing is about picking small winners, who are doing the right things a little bit like what I was doing, but I was kind of going for established companies, not people who just began yesterday. And I would again, stick with the same prints, even if you know if I will. jinkosolar is the world's biggest solar company, my first investment would have been 10,000. Because yeah, that's as much as I invest. I know, it's the world's biggest Nevermind 10,000 When I'm really bullish, and its price has gone down from 16, where I got into what 10? Or I think it's absurdly low, and it's got a multiple of like, three or something silly like that. Yeah, fine. I'll increase it to 15 Maybe. And then finally, 20. And that worked, because as you know, it went up since then. So and but just because the world's biggest solar, I wouldn't put in 20 from day one, right? So there was a logic to that. And you know, even if it was doing fantastically well, the initial investment, the quantum committed wouldn't go up beyond 25. If it's doing really well, and the 20 has become at which it did at one point, or 60 or thereabouts, then I'd actually reduce my exposure, I'd cut it down on the logic that well, yes, you know, I know I'm not invested more than 20. But what if this comes down? And why should I lose opportunity, so I'd take out some of that, and they'd keep it still at maybe 30, not 20, or something like that. But that's because I was tracking the original investment, not just the current mark to market. And fine if it did come down and went down to 15,000 Worth mark to market or 10,000 mark to market. Okay, so I've lost the opportunity, but at least I'm not out of pocket completely on my underlying so that's the kind of discipline now. For someone like that. So also look at the number of steps one, check what category it is 100,000 If it's a sovereign 50,000 If it's a credit, along come the friend of mine, I won't name him because that's not fair. He says, Boy, have you checked out ballarpur industries? I said, No, why should I check it out? This man, there's this bond, the long dated bond on that. It's earning like 8.75% I said, really? Why should that be? I mean, this was like, decently rated company as a single layer or something like that. Why would that be the case? And should the first thing alarm bells should have run as Oh, it's because it's a long bond. It is so long that it could be a perpetual almost, so I could find, yeah, I can get it. Yeah, okay, fine. Let's buy some. And he says, No, man, this is fantastic. This is the best thing ever. And I said, Do you know that I know the family says, wow, why don't you ask them but I don't think I can ask them I said but you know, since I know the family, I guess I can be bullish. So I went in with the idea that I'll purchase my maximum amount on credit which is 50,000 error number one, I didn't do 50,000. Guess what? Guess what? I did 100,000. So I treated them because my friend was saying this and he was so bullish on that, because I knew the family that owns this company, and they are respectable family. I went in front, double the quantum. So that's mistake number one, error number one. error number two is every year, I keep reading about companies, right? And I keep so there was some news flash or the other, which I got through my feeds. And it said that they were involved in some contract in Malaysia. So I thought, yeah, okay, fine, good. And price had gone up. So I said, That's cool, you know, contract in Malaysia. But of course, I didn't keep number two didn't keep track to see what happened with that contract in Malaysia. But what actually did happen is that they lost it. Now, this is a basically a paper company. And if they lose a contract in Malaysia, that's the big thing. So I should have seen that I lost the news item altogether. So I didn't, error number two, did not keep track. Because you know, what? If something were happening, you know, my friend would tell me because you know, he was the one so no, he didn't, because he'd missed it as well. Right? error number three, when the contract was lost, it went down in price from where I bought in at. So I still remember these prices, right? Because I have this. It's my worst investment. Obviously, I'll remember nothing, right? So went down from 88 to like, 75. And I thought myself, Oh, my God, that's terrible. So it's gone down that much. And I thought, again, era number two, or three was when something moves beyond your level, you either take profit, or you cut losses, not 100%. But you reduce your exposure, right, if you've got that, what should I have done, logically, brought down that surplus exposure, which was, instead of being originally $50,000, was actually started at $100,000, I should have brought the 100 down to 50, which means the exposure would have gone down quite a bit at that point, when it was down from 88 to 75, or $75. I didn't. Era number four, do not sit on losses, and on and hung on and it dropped and dropped and dropped. And finally, at some point, when it was just too low, folks, for it to make any difference, it was down to the sort of single digits, numbers, they actually stopped paying coupon and I thought to myself, shit, that's when I should have called the family and said, Hey, you guys still okay with this bond of yours or not? They stopped paying coupons the defaulted on coupon. Right. Now, it's still sitting there still not defaulted. But it's worth nothing. It's worth like a couple of dollars. there abouts. So like five successive errors? In each case, I broke my own discipline.
Andrew Stotz:
Yeah, five errors in a discipline, mind and frame. Yeah,
Pavan Sukhdev:
decide? Yeah. So I made so many exceptions. Now, the lesson moral of the story is don't make exceptions for God's sakes, the rules are the essence. But that's what happened. Yeah.
Andrew Stotz:
Maybe I'll just share what I took away from it. You know, I have, I follow a stop loss system, that every quarter I look at the current price. Let's just say the price is 100. And I say okay, if it goes down 25%. I'm going to exit questions asks, and I'm in I'm in a period for three months before I look at it again. And so I know that also my way I do it is basically when I exit. I don't buy anything else. Yeah, I don't allow myself to be forced to go and buy something just because I sold something, something else. Exactly. And I just wait until the end of the quarter. And then I reevaluate the whole portfolio. Now, imagine I held it and went up to 200. You know, now I would say, Okay, if it goes down to 150, I would sell, you know, at 25%, down or so. And then I set that rule. And then I followed that very religiously for many, many years. But I have to admit, there were a few times when I broke the rule. And my team, my business partners, and I had a powwow on a couple of these times that we just thought this is like, we've got to break the rule in this case. And then we said what we have to do is we have to track what happened after we broke the rule versus if we hadn't broken the rule. It was amazing. Almost every time that we broke a rule, we underperformed it, just follow the rules. Follow the
Pavan Sukhdev:
rules. Yes, yeah.
Andrew Stotz:
Yeah. So how would you summarize that, you know, well, the thing of it this way, think of a young, a young man or woman out there who's been building their own system and their own. You know, they're gonna come into a situation where they're going to have a question and they're going to start to think about but maybe they don't think about it that much. You know, maybe that's what happened is you had some comfort and then. So my question to you is based upon what you learned from this story and what you continue to learn, what's one action that you would recommend that they take to avoid suffering that same fate? Yeah.
Pavan Sukhdev:
Okay, well, I'm not sure if it's one action, but two acts. One is do setup concentration risk limits. And I think that I still believe that so, you know, idiotically like I mean, you'd imagine that my worst story would be in equity story, right? Because that's what No, it's a debt story. It's like more fool me like for having the right ideas and actually getting it wrong in the wrong place, as against where most people get it wrong. Right. So anyway, so step one is, please have concentration risk limits, right? And why did I set like my sovereign is, if you like, 10 times my equity, concentration limit. And my credit is five times my equity construction limited, I, to be honest, don't distinguish between the typical 10,000 That I would invest in an equity, I wouldn't necessarily say that, well, this is Unilever. So I can do more. And this is something else. So because the equity risk is an equity risk, just get used to it. And you know, you sort of understand that you're taking that if you don't want to take the full amount and take half, that's what I do sometimes take 5000, to begin with, to make sure that you know, you're not you're not getting that wrong. And plus, given that I'm already sexually aligned, I wouldn't pick up any random sectors, typically, I wouldn't do that I would just pick sectors, which interests me, basically. So I say, please have concentration risk limits and reflect the volatility of that asset in your concentration risk limits. Because there's no point having a concentration list limits where every supposing I typically have at any time 25 to 30 bonds or equities in my portfolio, once in a while, maybe higher once in a while, a little bit lower. But that's typical. So typically, my single equity or bond shouldn't be more than 3% of my portfolio, which, which is actually true. And thank God for that, at least in my mind, and thank God for that. But when you begin that, when you begin with that, even if you do get it badly, wrong, whatever good or bad reason, and there is no reason you should get it wrong for bad reasons. But once you've done that, my second advice it, once you set up the concentration risk limits then put in place your trading style, which is must always do my research must always have stop losses. And you know, if you don't want to take profits, that's fine. But you know, don't end up with busting your concentration risk on a mark to market basis, we're just so big, that you begin to think shit, why didn't I get out at least half of that? Because it went up and then it's gone down again. So don't don't end up with, you know, silly, silly regrets if you're like, as an adult. And then, the third is diversification, it was really hard. So the but but I kind of when I say concentration risk limits, what I'm saying to you is that, please do diversify. Because that does really help the portfolio. Okay, great advice. Yeah, these are two key advices. And yeah, well follow your road.
Andrew Stotz:
Now, now, we have a saying that I say because my business partner sometimes will come to me and go, we need to break the system for this one. And I said,
Pavan Sukhdev:
why? Yeah,
Andrew Stotz:
I'd say so every time that we lost? Did we learn anything? So we have a much more robust discussion now. All right, let's ask another question is what's the resource either of yours, like you've talked about sme 360. X, or any other resource that you'd like to recommend for listeners?
Pavan Sukhdev:
You know, I don't totally know who my listeners I mean, they could be from the investor side. Or they could be a corporate executive, or, you know, just random dudes or whatever. But so I won't, I won't recommend any product. But when I says, please visit our website, www dot just impact.com. Because here's, here's my key message. Today, you got a world which is still, you know, enamored of the idea that ESG ratings as a way to figure out something sustainable or not, it's not like a company sustainable if it's impacts, in other words, impacts on shareholders, that financial capital impacts on employees, that's human capital impacts on the environment, that's environmental impacts that natural capital, and then finally impacts on society, social capital, if these four impacts of a company are positive, plus, plus, plus, plus, right? Then it doesn't matter whether there's 10 of you, or 10,000 of you, or even 10 million with you because the world's a better place. Right? So fundamentally, sustainability about getting these four pluses going in your company. That's the basic concept, right? Impact is the change in human wellbeing as a result of the activities of a corporation and its value chain. And all of this can be calculated nowadays, given how much and you learn a bit more when you see our website, how much there is available in terms of data and machine learning and so on. Now, if you happen To be a company, which is plus plus minus minus, right? I put this I'm not sure something like this, right? Plus, plus minus minus right? Then if there's 10 of you, maybe it doesn't matter. But if it's 10,000, or fewer than the two minuses, they're gonna cause a problem somewhere. Because you're hitting human capital and natural capital, or maybe human and social capital, you're causing a problem somewhere. And if there's more than a few 1000 of you, then the world is crude, because you've totally destroyed somebody's or some country's human social or natural capital. That's, that's sustainability. That's corporate sustainability. That's all there is to it. But the point is, it becomes difficult when people do not measure sustainability, or try surrogates as measurement. And that's the whole of the world of ESG is all about surrogates. And they say, Well, no, no, what we are trying to do. We know there's a beautiful article, which is there on my website on the changing definitions of ESG. Initially, they said, well, it's about, you know, getting it right, and sustainability. And so no, it's not about sustainable, it's about defending it, it's about outside in, it's all about defending yourself against the problems of climate change, and pollution, and, and so on, and so forth. So, and then it changed again, saying no, this is about optimizing risk versus return. Because you know, you can do better if you're more sustainable, and then the changes again, no, it's about reporting your impacts. If you keep changing the definition of what is ESG, for every time your previous definition goes wrong, then you just lose credibility. And that's exactly what's happened. You can't redefine something four times just because it went wrong. The last definition, I'm telling you that my definition for sustainable companies is going to stay after I'm dead, right? A company's sustainable if its impacts on natural, social produced and human capital A plus plus, plus plus. And if it's getting part of the way, there is three pluses, that's not bad. But please try to be for plus.
Andrew Stotz:
All right, last question, what's your number one goal for the next 12 months?
Pavan Sukhdev:
Get my company to get more business? Because I mean, you know, it's nice to be right. But it's better to be profitable. And so I need my company to get profitable, grow, grow, grow, grow profits, basically, I think I think we've grown our product suite to the right point, and we need to get more clients.
Andrew Stotz:
I can't wait to talk to you again in a year. Well, maybe we do the next interview on your plantation. That would be better.
Pavan Sukhdev:
That'll be Yeah, yeah. I'll have to get internet on my plantation. The reason I'm in this beautiful little town called Canola is because I would have failed you on the internet. If I had sat. Well,
Andrew Stotz:
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. As we conclude, Travon, 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
Pavan Sukhdev:
the audience? All the best guys invest wisely invest well, right and when it works, right, do something useful with that money. Beautiful, and
Andrew Stotz:
that's a wrap on another great storytellers, create, grow and protect our well fellow risk takers. Let's celebrate them today. We added one more person to our mission to help 1 million people reduce risk in their lives. This is your worst podcast hose Andrew Stotz saying, I'll see you on the upside.